BETWEEN : MTQ CORPORATION LTD (A SINGAPOREAN CORPORATION)

Corporations law - General meeting - Validity of shareholders' votes - Whether auditor's certificate conclusive - Right to object to invalid proxies and ineligible votes - Chairperson's conduct in relation to objections - Whether irregularity in conduct of ballot procedural or substantive - Whether irregularity produced injustice - Whether chairperson's conduct amounted to a breach of director's fiduciary duty

Corporations Act 2001 (Cth), s 140, s 250A, s 250G, s 1319, s 1322, s 1324

COR 391 of 2004 - Plaintiffs' application dismissed

COR 389 of 2004 - Plaintiff's application dismissed

Colonial Gold Reef Ltd v Free State Rand Ltd [1914] 1 Ch 382

Cordiant Communications (Australia) Pty Ltd v The Communications Group Holdings Pty Ltd (2005) 55 ASCR 185

Fast Scout Ltd v Bergel & Ors [2001] WASC 343; (2001) 25 WAR 244

Galt v Flegg [2003] QSC 290

Greig & Anor v Australian Building Industries Pty Ltd [2002] QSC 138

John Pfeiffer Pty Ltd v Rogerson [2000] HCA 36; (2000) 203 CLR 503

Link Agricultural Pty Ltd v Shanahan & Ors [1998] VSCA 3; [1999] 1 VR 466

McGellin v Mount King Mining NL (1998) 144 FLR 288

P W Saddington & Sons Pty Ltd and the Companies Code (1990) 19 NSWLR 674

Re Ferro Constructions Pty Ltd (1976) 2 ACLR 18

Re Sidex Australia Pty Ltd (Receiver and Manager Appointed); Sipad Holding DDPO & Anor v Popovic & Ors (1995) 18 ACSR 436

Remfrey & Aloha Shangrai-La Atlas Cruises Pty Ltd [1968] QWN 44

Sydar Pty Ltd v K Simmonds Finance Pty Ltd (1995) 16 ACSR 384

Wall v Exchange Investment Corp Ltd [1926] 1 Ch 143

Wall v London and Northern Assets Corporation [1899] 1 Ch 550

Whitehouse v Capital Radio Network Pty Ltd & Ors [2004] TASSC 12; (2004) 48 ACSR 569

Whitlam v Australian Securities and Investments Commission [2003] NSWCA 183; (2003) 57 NSWLR 559

ANZ Nominees Ltd v Allied Resources Corporation Ltd (1984) 2 ACLC 783

Broadway Motors Holdings Pty Ltd (in liq) & the Companies (New South Wales) Code (1986) 6 NSWLR 45

Byng v London Life Association Ltd & Anor [1990] 1 Ch 170

Electro Research International Pty Ltd v Stec (1996) 20 ACSR 320

Green & Ors v Wilden Pty Ltd & Ors [2005] WASC 83

Poliwka v Heven Holdings Pty Ltd (1992) 6 WAR 505

Re Australian Consolidated Press Ltd (1994) 117 FLR 451

Re Caysand No 64 Pty Ltd [1994] 2 Qd R 467

Re Chevron Furnishers Pty Ltd (in liq) [1994] 2 Qd R 475

Ryan v South Sydney Junior Rugby League Club Ltd (1974) 3 ACLR 486

Stanham v The National Trust of Australia (New South Wales) (1989) 15 ACLR 87

Talbot v NRMA Holdings Ltd & Ors (1996) 68 FCR 590

1 LE MIERE J: MTQ Corporation Ltd is a Singaporean registered public company with two Australian subsidiaries, MTQ Holdings Pty Ltd, and MTQ Engine Systems (Aust) Pty Ltd, together referred to as the MTQ Group. In October 2004 the MTQ Group, through MTQ Holdings and MTQ Engine Systems, held 26.4 per cent of the defendant's share capital. The defendant, which I will sometimes refer to as the Company, is a multi-discipline engineering company based in Australia.

2 In October and November 2004 the defendant acquired the Stelform Engineering Group of companies for a total consideration of $6.8 million. Subsequently in November 2004 the defendant entered into an agreement to purchase the business and assets of Laser & Allied Cutting Services for a total consideration of $6.5 million. The board of directors of the defendant proposed that those acquisitions be funded by way of a capital raising of approximately $10.16 million consisting of a 1:10 non-renouncable rights issue at 59 cents to raise $3.08 million and a concurrent placement of 12 million shares at 59 cents. The MTQ Group supported the acquisitions but was opposed to the proposed method of funding those acquisitions. The MTQ Group took the view that the acquisitions should be funded through a combination of both debt and new equity and that the new equity should be limited to a rights issue to be capped at $6 million.

3 By notice dated 3 November 2004 the company secretary of the defendant gave notice of a general meeting to be held on 3 December 2004. The notice stated that the special business of the meeting was to consider and, if thought fit, to pass three resolutions. Resolution 1 sought shareholder approval for the issue and allotment of up to 20 million fully paid ordinary shares to be issued at not less than 80 per cent of the market price per share. Resolution 2 sought shareholder approval for the allotment of 3,044,444 shares to the shareholders of companies in the Stelform Engineering Group. The shares had been allotted to shareholders of companies in the Stelform Engineering Group as part consideration for the purchase by the Company of all of the issued shares in the companies comprising the Stelform Engineering Group. Resolution 3 was to increase the annual remuneration of directors of the Company from $100,000 to $250,000.

4 The notice of general meeting set out voting exclusions required by the ASX listing rules. The voting exclusion in relation to resolution 1 was:

"The Company will disregard any votes cast on this resolution by a person who may participate in the proposed issue and a person who might obtain a benefit, except a benefit solely in the capacity of a holder of ordinary securities, if the resolution is passed, and any associate of those persons."

5 The voting exclusion in relation to resolution 2 was:

"The Company will disregard any votes cast on this resolution by a person who participated in the issue and any associates of those persons."

6 The prospectus for the placement of up to 12 million fully paid ordinary shares in the capital of the Company to be issued at a price of 59 cents (the placement prospectus) disclosed that the Company had entered into a broker agreement with Hartleys Ltd pursuant to which Hartleys was acting as sponsoring broker to the offer. Under the terms of the broker agreement, the Company must pay to Hartleys a broking fee of 5 per cent of the total amounts subscribed pursuant to the prospectus where Hartleys had sourced the funds. It is common ground that employees, shareholders and directors of Hartleys who might be entitled to share in the fee to be paid to Hartleys were persons who might obtain a benefit if resolution 1 was passed and hence those persons were covered by the voting exclusion in relation to resolution 1 and not entitled to vote on that resolution.

7 Prior to the general meeting the Company instructed its auditors, RSM Bird Cameron Partners, to report in respect of proxies and voting exclusions for the general meeting on 3 December 2004. Before narrating how that came about it is necessary to refer to article 63 of the Company's constitution. That article is entitled "Validity of Appointment of Proxy". Article 63.1 sets out formal requirements for the validity of a proxy. Article 63.3(a) provides that the Board may require the Auditor to audit and report on the validity of the instruments appointing a proxy and powers of attorney deposited under the Articles. Article 63.3(b) provides that the certificate of the Auditor is conclusive and binding on Members and the Company as to all matters stated in the certificate.

8 There was a meeting of the directors of the Company on 24 November 2004. Mr Lynch, Mr Linden, Mr Birmingham and Mr Woodhouse were present. Mr Kuah, the Chairman and CEO of the MTQ Group, and Mr Spence were apologies. It was resolved to form a committee of directors comprising Mr Lynch, Mr Linden and Mr Birmingham to consider and take action on the Company's behalf in respect of MTQ Holdings' stated intention of opposing the capital raising being put before members for approval at the general meeting on 3 December 2004. It was also resolved that the company secretary be authorised to appoint RSM Bird Cameron to verify proxies received and to act as scrutineers of any poll votes called at the general meeting.

9 On 1 December 2004 the company secretary wrote to RSM Bird Cameron and confirmed that the board required a report on the proxies cast in respect of the resolutions to be put to the meeting on 3 December and stating that the proxies had been validly completed and a report to state that the voting exclusions in respect of each resolution had been properly applied. In addition, RSM Bird Cameron was requested to conduct and report on any poll called at the meeting.

10 Mr Cubitt of RSM Bird Cameron provided the reports requested by the Company in the form of a letter dated 2 December 2004 to the company secretary together with an attachment entitled "Report on Proxy Voting for General Meeting of Shareholders to be held on 3 December 2004". The letter stated that the procedures that the firm had performed had been to review for correctness the work that had been performed by Mr Matthews, the Company's financial controller, who had compiled in an Excel spreadsheet format, a listing of eligible proxy and non-excluded shareholder voting, for the three resolutions that were to be put to the shareholders at the meeting. The letter referred to the firm's review of the proxies that the Company had admitted as eligible to vote and been entered onto the spreadsheet that had been compiled by Mr Matthews and also referred to the voting exclusions that applied in respect of each of the three resolutions to be put to the general meeting. The letter concluded:

"Report on the proxies cast in respect of the resolutions to be put to the general meeting

Set out in Attachment A to this letter, is a summary of the Proxy voting, relative to the resolutions to be put to the General Meeting and in respect of which, we have satisfied ourselves that:

• Correct voting exclusions have been applied by the Company in respect of each resolution."

11 The attachment stated that the number of issued shares at 10 am on 1 December 2004 was 58,999,358 as per the snapshot report obtained from the share registry at 5 pm on 1 December 2004. The attachment then set out in tabular form the number of valid proxies cast for and against each of the resolutions and the number of excluded proxies in relation to each resolution.

12 On 1 December 2003 to facilitate the plaintiffs scrutinising the voting process, the plaintiffs' solicitors, Bennett & Co, wrote to the defendant's solicitors, Q Legal, requesting that the Company provide to the plaintiffs no later than 3 pm on 2 December:

1. A list of all persons who may participate in the proposed share issue so that the plaintiffs might have a reasonable opportunity to independently verify which of those people were shareholders or associates of shareholders.

2. A list of all persons who might obtain a benefit, except a benefit solely in the capacity of a shareholder of ordinary securities, if resolution 1 was passed including any employee, shareholder or director of Hartleys who was entitled to share in the fee to be paid to Hartleys and any other person entitled to receive a fee in relation to the proposed placement.

Bennett & Co also requested that the Company permit them to inspect all proxies lodged in relation to the meeting.

13 At 5.54 pm on 1 December 2004 Bennett & Co received from the Company's solicitors a facsimile letter together with a list of persons to whom the Company intended, subject to shareholder and board approval, to issue shares under the placement prospectus.

14 At 4.52 pm on 2 December Bennett & Co received from the Company's solicitors a facsimile letter and a list of directors/employees of Hartleys who might obtain a benefit, if resolution 1 was passed. The letter also stated that representatives of Bennett & Co might inspect the proxies from 9 am the following morning at the meeting venue.

15 The plaintiffs and their solicitors considered the list provided by Q Legal to be inadequate for their purposes because it only detailed those directors and employees of Hartleys whom the defendant asserted to be shareholders in the Company. The plaintiffs asserted that in order to conduct an independent scrutiny they wished to have a comprehensive list of all employees, shareholders and directors of Hartleys who were entitled to share in the fee pursuant to the placement prospectus so that the plaintiffs could check for themselves that none of those persons had lodged proxies or purported to vote at the general meeting. The plaintiffs had also sought to establish the names of prospective subscribers for shares pursuant to the placement so that the plaintiffs could scrutinise the proxies and votes to ensure that there was no contravention of the voting exclusion requirement.

16 Another matter relevant to the scrutiny of proxies and shares arises out of an announcement by the Company of the issue of 910,000 ordinary shares by the exercise of employee options on 23 November 2004. By letter of 2 December 2004 to the Company's solicitors the plaintiffs' solicitors referred to the Company's announcement to the ASX on 26 November 2004 that it had issued 910,000 ordinary shares upon the exercise of employee options on 23 November 2004. The plaintiffs' solicitors stated that pursuant to cl 4(a) of the Company's constitution the power to issue shares was vested in the board of the Company. The plaintiffs' solicitors requested a copy of the board resolution pursuant to which the shares were issued, copies of the notices given to the Company by relevant employees regarding the exercise of the options and confirmation that the funds for the exercise of the options had been received prior to the issue of the shares. The plaintiffs' solicitors said they sought the information to confirm the validity of the allotment of the shares.

17 The general meeting took place on the morning of 3 December 2004. David Sanders, a partner of Bennett & Co, attended the meeting venue shortly after 9 am as a proxy holder appointed by a number of shareholders. He was accompanied by Ms Currie, a senior associate of, and Ms Hughes, a solicitor employed by, Bennett & Co. Ms Currie was a proxy holder appointed by MTQ Holdings. Mr Tony Veitch, a commercial adviser to the MTQ Group, was also in attendance for the purpose of inspecting the proxies.

18 Initially, the representatives of the plaintiffs were not permitted to inspect the proxies. Kevin Dundo, a partner of Q Legal, the Company's solicitors, arrived at the meeting place and was met by William Woodhouse, the company secretary of the defendant. Mr Woodhouse informed Mr Dundo that he had not yet allowed the representatives of the plaintiffs access to the proxies as he was waiting for Mr Dundo to arrive. Mr Dundo asked Mr Woodhouse to immediately provide access to the proxies.

19 Ms Currie reviewed each power of attorney that was lodged with a proxy. She noted that the power of attorney in each case did not authorise the appointment of a proxy as is required by the Company's constitution. She wrote down the names of 23 shareholders whose proxies were signed by a power of attorney as she considered that their proxies may be invalid. Ms Currie noted that those proxies related to 655,200 shares.

20 The proxy forms contained separate boxes for the signature of a company director and for a sole director and sole company secretary. Ms Hughes observed that a number of proxy forms were signed by only one director but the proxy form did not state that it was a sole director company. She considered that the proxy form had been inadequately executed. Ms Hughes wrote down seven shareholders who had executed proxies that she considered to be inadequate for that reason. Those proxies relate to 2,670,933 shares. Ms Currie made a note which appears to add up the number of shares to which objection might be taken. They appear to be as follows:

Proxy forms signed by one director but not stating it was a sole director company

Employees who received employee shares on 23 November 2004

The reference to John Calvert was not explained in the evidence.

21 Meanwhile and prior to the commencement of the meeting Mr Sanders discussed a number of matters with Mr Dundo. Mr Dundo provided Mr Sanders with a letter from the Company's auditors to the effect that the 910,000 ordinary shares issued upon the exercise of employee options on 23 November 2004 had been properly issued. Mr Dundo said that the Company would not provide Mr Sanders with any of the information requested by Bennett & Co concerning the employee shares and would not provide Mr Sanders with an opportunity to verify whether the relevant shares had been validly issued in accordance with the Company's constitution. Mr Dundo said that he had a copy of the list of shareholders of Hartleys which could be viewed by a solicitor from Bennett & Co but a copy could not be taken. Mr Sanders said that the solicitors who were checking the proxies would not have time to go through the list against the share register prior to the meeting but that they would exercise their right to do so during the taking of any poll. Mr Sanders asked Mr Dundo when the company would provide to him the other information that the plaintiffs' solicitors had requested in their letter of 1 December 2004 concerning the persons who may participate in the proposed placement issue and the persons who might obtain a benefit from the fee payable to Hartleys. Mr Dundo asked what that information was. Mr Sanders said that it was a list of any employees of Hartleys entitled to share in the fee to be paid to Hartleys and a list of any other persons entitled to receive a fee in relation to the proposed placement. Mr Dundo replied to the effect that Bennett & Co's letter had not asked for that information. Mr Sanders pressed the point and Mr Dundo said that he had not understood that that was what Bennett & Co were asking for but he would seek to obtain the information during the course of the meeting.

22 The meeting commenced at approximately 10.15 am. The Chairman, Mr Lynch, opened the meeting and introduced himself, his fellow directors, the company secretary, the Company general manager and Mr Cubbit. Mr Lynch stated that the register of members and directors' shareholdings was available for inspection. Mr Lynch informed the meeting that the proxies received were tabled and open for inspection. He then declared that the proxies were valid in accordance with the Company's constitution.

23 At that time Mr Sanders moved that the meeting be adjourned until 13 December 2004. A motion to adjourn was moved and seconded. After discussion, the motion to adjourn was lost on a show of hands. Mr Sanders demanded a poll. Prior to adjourning the meeting to conduct a poll, the company secretary, Mr Woodhouse, informed the meeting of the total number of votes exercised by proxy for and against each resolution.

25 At approximately 11.15 am the meeting was reconvened and the chairman declared that the motion to adjourn the meeting failed. Mr Lynch then read out resolution 1 which was moved and seconded. Various persons spoke for and against the motion. Mr Sanders was one of the people to speak against the motion. The resolution was put to the meeting and carried on a show of hands. Mr Sanders called for a poll. Mr Lynch informed the meeting that the poll would be conducted after the other resolutions were dealt with by the meeting so that any further polls on subsequent resolutions could be conducted at the same time if necessary. Mr Lynch read resolution 2 which was moved and seconded. The second resolution was put to a vote and carried on a show of hands. Mr Sanders demanded a poll. Mr Lynch informed the meeting that the poll would be conducted after the third resolution had been dealt with. Mr Lynch read the third resolution which was moved and seconded. The third resolution was passed on a show of hands. At approximately 11.45 am Mr Lynch adjourned the meeting to conduct the poll on resolutions 1 and 2.

26 While the poll was being taken, Ms Currie and Mr Veitch scrutineered the voting process and the counting of the votes by the auditors of the Company.

27 During the adjournment Mr Sanders asked Mr Dundo when he would be provided with the information he had requested in relation to persons entitled to share in the fees to be paid in relation to the placement. Mr Dundo gave Mr Sanders a list of a number of other stockbroking firms who were entitled to receive a fee in relation to the placement. Mr Sanders passed this list to Mr Veitch to check against the share register. Mr Sanders also asked Mr Dundo when he would be provided with a list of the individual employees of each of those broking firms who may be entitled to share in the fee. At no time during the meeting did Mr Dundo provide that information or say when he would provide it.

28 Mr Sanders also asked Mr Dundo if he could have the copy of the list of shareholders of Hartleys to check against the share register. Mr Dundo gave the list to Mr Sanders. Mr Sanders obtained a copy of the share register to review the list against, after Mr Veitch had finished using the share register to scrutinise the voting process. Before Mr Sanders had an opportunity to review the list he was asked by the company secretary, Mr Woodhouse, whether he accepted the votes as counted by the auditor. After discussions with Mr Veitch, Mr Sanders said that he accepted the mathematical calculation of the voting process but said words to the effect that there were a number of votes cast and counted in favour of the resolution which he did not accept had been validly cast.

29 At approximately 12.28 pm Ms Currie approached Mr Dundo and said to him that the plaintiffs had a number of concerns with the proxies. Ms Currie asked Mr Dundo if he wanted her to raise them with the chairman at that time rather than bring them up during the meeting. Mr Dundo said words to the effect that it was too late, the chairman had already ruled that all the proxies were valid. Ms Currie then told Mr Sanders what Mr Dundo had said. At that time people were going back into the meeting room. Mr Sanders said to Ms Currie words to the effect that it was too late, they were reconvening the meeting.

30 Mr Sanders sought out Mr Dundo. Mr Dundo said that he would not discuss the matter. Mr Sanders told Mr Dundo that he thought that was unfortunate as in accordance with the Company's constitution all voting objections needed to be taken at the meeting, and as such he would then need to go through the process of reading out all of the objections at the reconvened meeting, rather than trying to deal with them prior to the meeting being reconvened. Mr Dundo said the meeting was to be reconvened forthwith. Mr Sanders said to Mr Dundo that the plaintiffs' representatives had not had sufficient opportunity to check the voting procedure and the proxies, nor had they had the opportunity to check the list of Hartleys shareholders against the share register nor had they been provided with sufficient information in relation to other persons entitled to receive a fee for the placement to check those persons' names against the share register.

31 Mr Sanders then approached the chairman, Mr Lynch, and said that he would have no alternative but to exercise his right as a proxy holder under the constitution to read out all the voting objections at the reconvened meeting. The evidence establishes that Mr Lynch heard what Mr Sanders said but did not say anything in reply.

32 The meeting was reconvened at approximately 12.30 pm. Mr Lynch read the results of the poll on each resolution and declared each of resolutions 1 and 2 carried. Mr Lynch then proceeded, without pausing, to state that as that concluded the business of the meeting he formally closed the meeting. The meeting was closed at about 12.35 pm.

33 At or near the end of the meeting Mr Sanders stood up and raised objections in relation to proxies or votes cast. There is conflicting evidence as to precisely what happened.

34 Mr Sanders said that after the results of the poll on resolution 1 were announced he stood up and said that in accordance with the constitution of the defendant he wished to raise objections to a number of votes cast. Mr Sanders said that the chairman ignored his objection and carried on announcing the results of the poll on resolution 2. Mr Sanders said he repeated his objection once the results of the poll on resolution 2 had been announced but the chairman ignored his objection and declared the meeting closed.

35 In her evidence-in-chief Ms Currie confirmed Mr Sanders' account of what occurred at the meeting when it was reconvened after the polls had been conducted. She was not cross-examined.

36 In her affidavit Ms Hughes said that, having refreshed her memory from her notes, the chairman declared the result of the poll on resolutions 1 and 2 and declared that the motion was carried. She made no reference to Mr Sanders standing and addressing the chairman.

37 Mr Lynch said that after he had reconvened the meeting he informed the meeting of the result of the polls on resolutions 1 and 2, declared the resolutions carried and then closed the meeting. In his affidavit sworn 18 January 2005 Mr Lynch said that he did not see Mr Sanders stand up while he was reading out the results of the polls on resolutions 1 and 2 and declaring the resolutions carried. As the business of the general meeting had been concluded, he closed the general meeting immediately following his declaration of the result on resolution 2. Mr Sanders did, at that time, commence making statements to various representatives of the Company.

38 Mr Linden is a director of the Company. He was sitting next to Mr Lynch during the meeting. In his affidavit Mr Linden said that Mr Sanders did stand up while the chairman was reading out the results of the polls on resolutions 1 and 2. Mr Sanders said: "Mr Chairman, I wish to raise objections to a number of proxies", but that was after the meeting was closed by the chairman. In cross-examination Mr Linden clarified his position. He said that Mr Sanders stood up after Mr Lynch had finished reading the results of the polls but before he declared the meeting closed. Mr Sanders said: "Mr Chairman, Mr Chairman, I want to raise an objection with regard to the proxies", but he did not speak those words before the meeting had been closed.

39 Mr Birmingham is a director of the company. He was sitting at the head table during the meeting. In his affidavit he deposed that Mr Sanders stood up while the chairman was reading out the results of the polls on resolutions1 and 2 and said words to the effect that he wished to raise objections to a number of proxies but he spoke those words after the chairman had closed the meeting.

40 The company secretary, Mr Woodhouse, was also sitting at the front table during the meeting. In his affidavit Mr Woodhouse deposed that Mr Sanders stood up while the chairman was reading out the results of the polls on resolutions 1 and 2 but his recollection is that Mr Sanders spoke only after the general meeting was closed.

41 Mr Dundo was sitting in the front row at the meeting some six rows or so in front of Mr Sanders. In his affidavit he deposed that after the meeting closed Mr Sanders commenced raising objections and approached Mr Dundo and said words to the effect that the constitution of the Company required him to make the objections in the general meeting and that he had been prevented from doing so by the chairman closing the general meeting. Mr Dundo did not see Mr Sanders standing before the meeting was closed.

42 Mr Cubitt of RSM Bird Cameron was seated at the back during the meeting. In his affidavit he deposed that after the chairman had closed the meeting Mr Sanders sought to address the chairman and said words to the effect that he had objections to certain proxies lodged. In cross-examination Mr Cubitt said that he believed the chairman had closed the meeting and ceased talking when Mr Sanders rose to his feet but there may have been a crossover, that is Mr Sanders may have risen to his feet and commenced speaking as the chairman was ceasing to speak.

43 Mr Phong is a chartered accountant employed by RSM Bird Cameron. He was assisting Mr Cubitt and attended the general meeting. In his affidavit Mr Phong deposed that after the chairman had closed the meeting Mr Sanders, who had been standing while the chairman was speaking, sought to address the chairman and said words to the effect that he had objections to certain proxies lodged.

44 Mr Middleton was a shareholder present at the meeting. In his affidavit he deposed that after the results of the polls were read out and the resolutions declared carried, Mr Lynch closed the meeting. Mr Middleton deposed that after Mr Lynch had closed the meeting Mr Sanders began to voice objections to the proxies. In cross-examination Mr Middleton said he was sitting in the second row of seats at the meeting, that is in front of Mr Sanders. He said that he did not see Mr Sanders standing until after the chairman had closed the meeting, but Mr Sanders may have stood before the chairman closed the meeting. Mr Middleton did not hear Mr Sanders speak until the chairman had closed the meeting. He heard Mr Sanders say the words, "Mr Chairman, Mr Chairman".

45 The evidence establishes that Mr Sanders stood, for the purpose of raising objections, before the chairman declared the meeting closed. I find that Mr Sanders began speaking before the chairman closed the meeting. However, the chairman spoke the words: "That concludes the business of the meeting. Ladies and gentlemen, as that concludes the business of the meeting, I formally close the meeting", or words to that effect at about the same time that Mr Sanders commenced to raise his objections. Mr Sanders did not complete raising his objections before the chairman declared the meeting closed. After the chairman declared the meeting closed Mr Sanders said words to the effect that he wished to raise objections to a number of proxies.

46 That series of events is inherently probable. It is likely that Mr Sanders waited until the chairman had announced the result of the first poll before he stood to make his objections. The chairman ignored him and read the result of the second poll. It is likely that Mr Sanders then spoke to get the chairman's attention by saying words to the effect: "Mr Chairman, Mr Chairman". The chairman continued to ignore Mr Sanders and declared the meeting closed. It is inherently likely that when the chairman ignored him and proceeded to declare the meeting closed Mr Sanders proceeded to say that he had objections to the proxies. That sequence of events is broadly consistent with the evidence of most of the witnesses.

47 Mr Lynch knew that Mr Sanders wished to raise those objections but did not afford Mr Sanders an opportunity to do so. By reading the result of the polls and immediately declaring the meeting closed, Mr Lynch denied Mr Sanders the opportunity to raise those objections. In cross-examination Mr Lynch explained his position as follows:

"Q: He came and asked you. He told you, forewarned you, that he wanted to object?

A: He forewarned me that he wanted to object.

Q: And I'm asking you, when you reconvened the meeting why didn't you then say ...?

A: It was up to him. If he wanted to object ...

Q: He had to interrupt you. Is that what you're saying? It was a race to see if he could object before you got to the words: 'The meeting is closed now'. Is that it?

A: If he wanted to object he had to stand up and object.

Q: He did stand up?

A: In any case I had already made the decision that the proxies were valid. That had already been dealt with and they had not been raised. If he wanted to raise that it was my opinion that he should have raised it before the votes were cast on those resolutions.

Q: So your view then was that you had no obligation to afford him an opportunity to voice his objection?

A: That's about right.

Q: And you weren't going to allow him an opportunity to voice his objection?

A: Correct.

Q: Notwithstanding he had given you notice that he intended and wished to voice an objection?

A: That's correct."

48 After the meeting Bennett & Co received two facsimiles from Q Legal each dated 3 December 2004. The first stated that the firm held the shareholders list for Hartleys Ltd and that list would be provided to Mr Sanders on his undertaking that he would keep the list strictly confidential and not use it for any purpose other than to check the proxies regarding the application of the voting exclusion. The second confirmed that Q Legal had, for inspection at its offices, the list of the employees who were entitled to share in the fee payable by the Company to Hartleys Ltd.

49 After the meeting on 3 December RSM Bird Cameron were provided with two letters from Hartleys Ltd dated 3 December 2004 identifying the directors and employees of Hartleys Ltd and other broking houses and individuals who were entitled to participate in the fee payable by the Company to Hartleys in respect of the placement. RSM Bird Cameron reviewed those facsimiles and having reviewed the information provided to his firm Mr Cubitt provided a report to the defendant's solicitors in the form of a letter dated 3 December 2004. The letter states that having reviewed the voting at the general meeting RSM Bird Cameron had determined:

• John Featherby was listed as shareholder and identified as an excluded voter whose voting was not included in any of the polls conducted at the meeting;

• Darryl Smalley was listed as shareholder and identified as an excluded voter whose voting was not included in any of the polls conducted at the meeting; and

• None of the other identified natural persons or Euroz Securities or Maurice Feilich were listed as shareholders of the Company in the snapshot listing of shareholders provided by the Share Registry.

50 On 3 December 2004 MTQ Holdings commenced COR 389 of 2004 by originating process. MTQ Holdings claimed an injunction restraining the Company from allotting any shares pursuant to the authorisation by resolution 1 at the general meeting.

51 That application came on for hearing before Master Sanderson at about 11 am on 3 December 2004, that is during the course of the meeting. Upon the plaintiff giving the usual undertaking as to damages, the Company gave an undertaking until noon on Monday 6 December 2004 not to allot the shares. The application was adjourned to 9 am on Monday 6 December.

52 When the matter again came on before Master Sanderson at 9 am on 6 December the plaintiff's counsel informed the court that it would not maintain its undertaking as to damages. Consequently both the plaintiff's undertaking as to damages and the Company's undertaking not to allot the shares were discharged on 6 December 2004.

53 Later on 6 December 2004 MTQ Corporation, MTQ Holdings and MTQ Engine Systems commenced COR 391 of 2004 by originating process. By that originating process the plaintiffs claim an order declaring the proceedings at the general meeting, including resolutions 1 and 2, to be void and such further or other orders as the court thinks fit.

54 On 6 December 2004 the Company allotted and issued 12 million fully paid ordinary shares pursuant to the placement prospectus and the authority of resolution 1 at the general meeting.

55 Both COR 389 of 2004 and COR 391 of 2004 came before the expedited list Judge in chambers on 7 December 2004. The expedited list Judge declined to enter the matters into the expedited list on the ground that the issues had not been identified clearly enough and the matters were adjourned to 9 December.

56 On 8 December the plaintiffs in COR 391 of 2004 filed a statement of issues.

57 On 9 December 2004 the expedited list Judge refused the plaintiffs' application to admit the proceedings into the expedited list.

58 On 22 December 2004 the plaintiffs filed a further statement of issues and relief sought. On 21 June 2005 the plaintiffs filed a further amended statement of issues and relief sought, which identified the statutory basis for the relief. The statement was in the same terms as the previous statement of issues except that the statutory basis for relief was added. The relief claimed is:

1. An order setting aside the declaration of the poll conducted in respect of resolutions 1 and 2 at the general meeting of the Company held on 3 December 2004.

Section 140 of the Corporations Act 2001 (Cth).

Section 1322(2) of the Corporations Act.

2. An order requiring the Company to convene and conduct, according to law, a general meeting and consider, and if thought fit, to pass resolutions in terms of resolutions 1 and 2.

Section 1319 of the Corporations Act.

Section 1324 of the Corporations Act.

3. Such further and other orders as the court thinks fit.

Section 1324 of the Corporations Act.

59 In his opening submissions counsel for the plaintiffs, Mr Bennett, said that the plaintiffs pressed for an order setting aside the declaration of the poll conducted in respect of resolutions 1 and 2 at the general meeting but did not press for an order requiring the defendant to convene and conduct, according to law, a general meeting which would consider, and if it thought fit, pass resolutions in terms of resolutions 1 and 2 because it was a matter for the directors of the Company to determine how they should deal with the matter. Mr Bennett submitted that the further relief sought by the plaintiffs was a declaration that the meeting was conducted otherwise than in accordance with the law.

60 The plaintiffs complain that the meeting on 3 December 2004 was not conducted properly. The plaintiffs submit that at the meeting they objected, or attempted to object to the counting in the poll of invalid proxies and ineligible votes, but that the chairman improperly denied the plaintiffs the right to object.

61 In their amended statement of issues the plaintiffs raised a number of issues relating to the right of a member of the Company to scrutinise voting. However, in his opening submissions counsel for the plaintiffs, Mr Bennett, referred to those issues and submitted that whilst one could have a debate about those matters, on the facts of this case they are not the central issue. The central issue, counsel submitted, is whether the defendant dealt with the plaintiffs' objection to the voting in relation to resolutions 1 and 2. Mr Bennett did not pursue the issues relating to scrutineering further in his opening submissions or in closing submissions or in any of the plaintiffs' written submissions. I will not pursue the issues related to scrutineering further.

62 Mr Bennett submitted that the fundamental issue concerns the conduct of the meeting on 3 December 2004 and in particular the manner in which the chairman dealt with the plaintiffs' objections, or attempts to object, to invalid proxies and ineligible votes. It is that issue that I will now consider. The starting point is the Company constitution.

63 Article 54.1 provides that a resolution put to the vote of the meeting will be decided on a show of hands unless a poll is demanded before or on the declaration of the result of the show of hands. Article 55.1 provides that if a poll is duly demanded, it must be taken, and the result of the poll will be the resolution of the meeting at which the poll was demanded.

64 Article 57.1 provides that each member entitled to vote may vote in person or by proxy, attorney or representative and on a poll every member present in person or by proxy, attorney or representative has one vote for each share the member holds.

65 Article 61 (Objection to Qualification of Voter) is important. I will set it out in full:

An objection may be raised to the qualification of a voter only at the meeting or adjourned meeting at which the vote objected to is given or tendered.

An objection mentioned in Article 61.1 must be referred to the chairman of the meeting, whose decision is final.

A vote is valid for all purposes unless it is disallowed as a result of an objection."

66 Article 62 deals with the appointment of proxies. Article 63 is entitled "Validity of Appointment of Proxy". Article 63.1 (Validity of proxy) provides that an instrument appointing a proxy is not valid unless:

"(a) the instrument and the power of attorney or other authority under which the instrument is signed; or

(b) a certified copy of that power or authority;"

is or are deposited at the specified place within the specified time.

67 Article 63.3, to which I have already referred, is important. It provides:

"(a) The Board may require the Auditor to audit and report on the validity of the instruments appointing a proxy and powers of attorney deposited under these Articles.

(b) The certificate of the Auditor is conclusive and binding on Members and the Company as to all matters stated in the certificate."

68 In the course of cross-examination Mr Lynch stated his opinion that upon its proper construction Article 61.1 does not permit a member of the Company to object that proxies are invalid.

69 Article 57.3 deals with voting rights for contributing shares. Article 58 is concerned with the vote of joint share holders. Article 59 deals with the exercise of the right to vote of a member who is legally incapacitated. Article 60 deals with the entitlement to vote of a member who holds shares over which calls are due and payable to the company. Mr Lynch formed his opinion about the construction of Article 61.1 on the fact that Articles 57 - 60 to which I have referred immediately precede Article 61 dealing with the objection to the qualification of a voter. That led Mr Lynch to the view that the qualification of a voter referred to in Article 61.1 is the qualification of the voter having regard to the matters dealt with in Articles 57 - 60.

70 Such a narrow construction of Article 61.1 should be rejected. The ordinary and natural meaning of "qualification of a voter" includes any condition which must be fulfilled or complied with before a vote may be exercised. One such condition may be that the instrument appointing a proxy has been properly exercised or that where the instrument is executed pursuant to a power of attorney then the power of attorney properly authorises the execution of the proxy. Every member has an interest in having the poll decided by valid votes and in accordance with the rules for the poll including the rules governing the right to vote by proxy. The articles should be construed so as to advance that purpose. The narrow construction put forward by Mr Lynch does not advance that purpose.

71 If, contrary to my opinion, Article 61.1 does not permit an objection to be raised to a proxy vote that is not in order, a member nevertheless has a right to have his proxy accepted if it is in order and has a right to have another member's proxy rejected if it is not in order. A member may object to an invalid proxy vote being included in a poll unless that right is removed by Article 63.3 -a possibility I will consider below. However, before considering that issue I wish to discuss the timing of objections.

72 In his evidence Mr Dundo said that he had taken the view that the right to object at a general meeting on the grounds that a proxy vote is invalid is a right that must be exercised prior to the voting process commencing. Mr Dundo said that in his view, once the chairman had declared the proxies valid and proceeded with the meeting a member no longer had a right to object to any vote by a shareholder. Mr Dundo said that when proxies are deposited at the Company office, the Company checks that they are in order and if they are not in order it informs the member who deposited the proxy. The member then has an opportunity to correct the instrument. An instrument appointing a body corporate representative may be defective. If objection is raised to the body corporate representative then the representative may take steps to put the instrument in order. If no objection is taken prior to the commencement of a poll then the representative may leave the meeting believing that his vote will be counted. If an objection to the vote is subsequently made the representative has no opportunity to correct the defect and the shareholder may be disenfranchised.

73 I do not agree with Mr Dundo's opinion. An objection does not have to be made before the commencement of the poll or voting process. Article 61.1 provides that an objection may be raised to the qualification of a voter only at the meeting or adjourned meeting at which the vote objected to his given or tendered. The replaceable rule in s 250G of the Corporations Act provides that a challenge to a right to vote at a meeting may only be made at the meeting. Neither Article 61.1 nor replaceable rule 250G says that the objection must be made before the commencement of the poll or voting process. To imply such a restriction upon the right to object would defeat the primary purpose of the right to object - that is to uphold the right of a member to a poll decided by valid votes, and thus to have another member's vote rejected if it is not in order.

Objections to votes - the defendant's response

74 The defendant has three answers to the plaintiff's contention that the chairman improperly dealt with the plaintiff's objection to the voting at the meeting. The first is that the objection was not made until the meeting was closed. The second is that the auditor's certificate is conclusive. The third is that the objections would not affect the outcome and thus can be disregarded.

75 The requirement of Article 61.1, and indeed replaceable rule 250G, is that a challenge to a right to vote at a meeting may only be made at the meeting. I find that, for the purposes of Article 61.1 the plaintiff's objection was made at the meeting.

76 Every member has an interest in having the poll decided by valid votes and a right to object to invalid votes being included in the poll. On the other hand, there is a need to limit the time at which such objections may be taken so as to bring finality to the poll. At the conclusion of a vote company officers and members must be able to act upon the resolution at a meeting without the prospect that the outcome of a poll may be changed by objections taken days or weeks later. Those competing interests are given effect in Article 61.1, and replaceable rule 250G, by requiring any objection to be taken at the meeting.

77 In the circumstances of this case, the objection was sufficiently taken by Mr Sanders standing and addressing the chairman, before the chairman closed the meeting, and then proceeding to state his objection notwithstanding that the chairman proceeded to close the meeting without permitting Mr Sanders to state his objection. Prior to the meeting reconvening Mr Sanders had informed the chairman that he wanted to exercise his right as a proxy holder under the constitution to make voting objections at the reconvened meeting. Mr Sanders commenced to object by standing and addressing the chairman before the chairman closed the meeting. Mr Sanders completed his objection and all those at the meeting heard the objection.

Was the RSM Bird Cameron letter and report a certificate?

78 The defendant submits that notwithstanding the plaintiffs' objection, or attempted objection, the auditor's certificate is conclusive.

79 The first issue is whether the RSM Bird Cameron letter of 2 December 2004 to the company secretary together with the attached "report on proxy voting for general meeting of shareholders to be held on 3 December 2004" (the Report) is a certificate for the purposes of Article 63.3(b).

80 The definitions of certificate in the Macquarie Dictionary include "a writing on paper certifying to the truth of something" and "a statement, written and signed, which is by law made evidence of the truth or the facts stated, for all or for certain purposes". The Macquarie Dictionary definitions of to certify include "to testify to or vouch for in writing" and "to give assurance; testify; vouch". A document may be a certificate notwithstanding that it does not contain the words "certificate" or "certified". A letter and attached report in tabular form may be a certificate if the letter and report together state the truth of something to a satisfactory degree.

81 The RSM Bird Cameron letter of 2 December 2004 and the attached Report constitutes a certificate for the purpose of Article 63.3. The Report states the number of valid proxies for and against each resolution and the number of excluded proxies in relation to each resolution. The attached letter is signed by Mr Cubitt and states that RSM Bird Cameron are satisfied in effect that the proxy votes and excluded proxies set out in the Report are correct.

82 Article 63.3(a) provides that the Board may require the Auditor to audit and report on the validity of the instruments appointing a proxy and powers of attorney deposited under the Articles. Article 63.3(b) provides that the certificate of the Auditor is conclusive and binding on members and the Company as to all matters stated in the certificate. The matters stated by the Auditor in the certificate which are conclusive and binding are not large. The matters are confined to those specified in Article 63.3(a), that is the validity of the instruments appointing a proxy and powers of attorney deposited under the Articles. To say that an instrument appointing a proxy or powers of attorney is valid is to say that it is legally sound, effective, or binding; has legal force; is sustainable in law (see Macquarie Dictionary). The Article in question does not refer to the validity of a vote cast in a poll but rather to the validity of the instruments appointing a proxy and powers of attorney deposited under the Articles.

83 Leaving aside the objection in relation to John Calvert, the plaintiffs' objections fell into three categories. The first relates to powers of attorney lodged with proxies where it was alleged that the power of attorney did not authorise the appointment of a proxy. That objection or challenge is one as to the validity of the instrument appointing the proxy or the powers of attorney. It is one of the matters that Article 63.3 provides the Auditor may report on and in respect of which the Auditor's certificate is conclusive and binding.

84 The second category relates to the proxy forms signed by only one director where the proxy form did not state that it was a sole director company. That is a matter that Article 63.3 provides the Auditor may report on and in respect of which the Auditor's certificate is conclusive and binding.

85 The third category relates to the votes cast by employees who received employee shares on 23 November 2004. The plaintiff's objection is that the shares issued upon the exercise of employee options on 23 November 2004 were issued without the authority of the Board as required by the Company's constitution and hence were not validly issued. The objection, in effect, is that the proxies, or the instruments appointing each proxy, were not effective in law because the shares had not been properly issued. That is a challenge to the validity of the instruments appointing the proxies and hence a matter that Article 63.3 provides the Auditor may report on and in respect of which the Auditor's certificate is conclusive and binding.

86 The plaintiffs say that they also wished to object that they had not been given a proper opportunity to investigate whether any votes, including proxy votes, had been cast by members who were excluded voters on each of resolutions 1 and 2, as set out in the notice of general meeting. That is an objection to the validity of the instrument appointing a proxy. If the member appointing the proxy is not entitled to vote on a resolution then the proxy is not entitled to vote on the resolution and the instrument appointing the proxy to vote on the resolution is not effective in law, it is not valid. Hence, these further objections are matters that Article 63.3 provides the Auditor may report on and in respect of which the Auditors' certificate is conclusive and binding.

87 The defendant submits that the chairman's decision would be amenable to review by a court if an error of law were made but is not otherwise amenable.

88 There are a number of authorities concerning provisions in the articles of companies regulating voting rights at meetings to the effect that votes not the subject of objection and disallowed by the Chairman were 'deemed valid' and not reviewable: Wall v Exchange Investment Corp Ltd [1926] 1 Ch 143; Wall v London and Northern Assets Corporation [1899] 1 Ch 550; Colonial Gold Reef Ltd v Free State Rand Ltd [1914] 1 Ch 382; Remfrey & Aloha Shangrai-La Atlas Cruises Pty Ltd [1968] QWN 44 and Re Ferro Constructions Pty Ltd (1976) 2 ACLR 18. It has been consistently held that such a provision is conclusive if the power was exercised bona fide even if mistakenly: Galt v Flegg [2003] QSC 290 at [34].

89 In Wall v Exchange Investment Corp Ltd (supra) the appellant had taken objection at a meeting to proxy votes being counted on the ground that the power of attorney pursuant to which they had been executed did not authorise voting by proxy. The chairman had considered the proxies prior to the meeting. The chairman disallowed the objection. The company articles included an article that provided that "no objection shall be made to the validity of any vote excepting at the meeting at which such vote shall be tendered ... and every vote, whether given in person or by proxy, not disallowed at [the meeting], shall be deemed valid for all purposes whatsoever". The Court of Appeal held that the decision of the chairman, taken in good faith and after considering whether upon the construction of the power of attorney it did or did not authorise the signature of the proxy, was final and no objection could be taken to it. Sargeant LJ noted the appellant's submission that, according to the terms of the article, if the chairman had disallowed a vote, his decision is not conclusive. Sargeant LJ said that it may well be that in the case where a vote has been disallowed, the shareholder whose right has been impeached to that extent should have a right to apply to the courts.

90 In Fast Scout Ltd v Bergel & Ors [2001] WASC 343; (2001) 25 WAR 244, the chairman of a general meeting of a company ruled invalid proxy forms because they had been pre-completed by Fast Scout Ltd. Clause 12.16 of the Company's constitution provided:

"An objection may be raised to the qualification of a voter only at the general meeting or adjourned general meeting at which the vote objected to is given or tendered. Any such objection shall be referred to the Chairman of the general meeting, whose decision shall be final. A vote not disallowed pursuant to such an objection is valid for all purposes."

91 Templeman J held that the proxy forms were valid and went on to consider whether the chairman's decision was final. His Honour held that cl 12.16 had no application to the case because no objection was raised as to the qualification of a voter, nor was any objection raised at the meeting. The chairman had determined in advance that he would declare any pre-completed proxy forms invalid. Templeman J held that whether making a ruling under cl 12.16 or generally, a chairman's decision will be amenable to review by the court if he makes an error of law. His Honour considered that proposition to be well settled and referred to the decision of the Victorian Court of Appeal in Link Agricultural Pty Ltd v Shanahan & Ors [1998] VSCA 3; [1999] 1 VR 466.

92 The same principle should apply to Article 63.3(b) which provides that the certificate of the Auditor is conclusive and binding on members and the Company as to all matters stated in the certificate. Where the Auditors' certificate contains a ruling that proxies are valid, a member may object to a proxy vote on the ground that the ruling was not made in good faith, is contrary to the statutory criteria or the criteria in the Company's constitution for the validity of a proxy or is otherwise erroneous in law. Article 63.3 does not have the effect that a member of the Company cannot object to the validity of proxies that have been certified by the Auditor to be valid.

93 Mr Sanders was entitled to object to the validity of proxies. Prior to reconvening the meeting, the chairman knew that Mr Sanders intended to object to the validity of some proxy votes. The chairman did not allow Mr Sanders an opportunity to make his objection. The chairman proceeded to read the result of the polls and then immediately declared the meeting closed.

94 The chairperson of a company general meeting has a wide discretion as to the conduct of a meeting on matters not prescribed by the Corporations Act or the company's constitution and the decision of a chairperson acting in good faith and rationally will not be reviewed by the courts. However, a chairperson's conduct should meet certain conventional standards in order to facilitate a meeting's function. Reasonable opportunity for argument on each side of the question should be allowed: Ford's Principles of Corporations Law [7.510]. A chairperson should give a member who he knows intends to object to proxy votes cast on a poll a reasonable opportunity to do so. Failure to do so is a failure to conduct the meeting in accordance with conventional standards in order to facilitate the meeting. The conduct of the chairperson in immediately declaring the meeting closed after reading the result of the polls when he knew that Mr Sanders intended to object to the validity of proxy votes cast in the poll prevented the shareholder, or proxy, from exercising their right as a shareholder to do so and impeded the polls being decided in accordance with the rules for the poll including the rules governing the right to vote and for ensuring that the polls are decided by valid votes. Such conduct may properly be described as an irregularity in the conduct of the meeting.

95 The plaintiffs seek an order setting aside the declaration of the poll conducted in respect of resolutions 1 and 2 at the general meeting. The plaintiffs seek the order pursuant to s 1322(2) of the Corporations Act.

96 Subsection 1322(2) provides:

"A proceeding under this 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 proceeding to be invalid."

97 Subsection 1322(1) provides that a reference to a proceeding is a reference to any proceeding whether a legal proceeding or not. A reference to a procedural irregularity includes a reference to the absence of a quorum at a meeting of a corporation. In this case, the meeting of 3 December 2004 is a proceeding under the Act.

98 Subsection 1322(1) declares that a procedural irregularity includes the absence of a quorum at certain meetings and a defect, irregularity or deficiency of notice or time. Subject to those provisions, the Act does not give any indication as to what is and is not a procedural irregularity. In Re Sidex Australia Pty Ltd (Receiver and Manager Appointed); Sipad Holding DDPO & Anor v Popovic & Ors (1995) 18 ACSR 436 at 449 Lehane J suggested that a procedural irregularity may arise where the parties have attempted to do something which the Act permits but have failed to do it effectively because of a procedural failure or omission but not where the parties have tried to do something which the Act does not authorise.

99 In Cordiant Communications (Australia) Pty Ltd v The Communications Group Holdings Pty Ltd (2005) 55 ASCR 185, Palmer J addressed the issue of what is a substantive irregularity as distinct from a procedural irregularity. His Honour referred to the cases concerning the distinction between a substantive law or rule and a procedural law or rule and in particular dicta from the joint judgment in John Pfeiffer Pty Ltd v Rogerson [2000] HCA 36; (2000) 203 CLR 503 at 543 - 544 and continued:

"103. In the light of this observation and of the decisions in Industrial Equity, ANZ Nominees, Scullion and Link Agricultural I think that the following general proposition may be formulated for the purposes of the application of CA s 1322:

- what is a 'procedural irregularity' will be ascertained by first determining what is 'the thing to be done' which the procedure is to regulate;

- if there is an irregularity which changes the substance of 'the thing to be done', the irregularity will be substantive;

- if the irregularity merely departs from the prescribed manner in which the thing is to be done without changing the substance of the thing, the irregularity is procedural.

104. The application of such a proposition in any particular case will depend upon the starting point, i.e., defining 'the thing to be done'. Different answers to the question will be found depending upon how broadly or narrowly one defines 'the thing to be done'.

105. For example, in the case of a shareholders meeting, if one defines 'the thing to be done' as 'the putting of a resolution to the vote of shareholders at a meeting' one could say that an irregularity which denies some shareholders an effective vote by invalidly excluding their proxies has not changed the substance of 'the thing to be done': a meeting has still been held and a resolution has still been put - what has occurred is merely an irregularity in the procedure for voting upon resolutions.

106. But if one defines 'the thing to be done' more narrowly, eg, 'putting a resolution to the vote of all shareholders present in person or by proxy at a meeting and entitled to vote', then to exclude some shareholders present at the meeting in person or by proxy and entitled to vote changes the substance of 'the thing to be done' so that the irregularity is substantive and not procedural.

107. In my view, the decisions in Industrial Equity and in those cases which have approved it support the following approach to irregularities at shareholders meetings. When the validity of the admission of votes is in issue, as a general rule, one starts with the proposition that the substance of 'the thing to be done' is the admission of the votes of all shareholders present in person or by proxy who are entitled to vote. Such shareholders have a statutory right to vote, either in person or by proxy. If something occurs which results in a denial of that right to a shareholder, there has been a substantive irregularity, not a procedural irregularity. The proceeding cannot, therefore, be validated by s 1322(2)."

100 With respect, I agree with his Honour that when the validity of the admission of votes is in issue, as a general rule, one starts with a proposition that the substance of the thing to be done is the admission of the votes of all shareholders present, in person or by proxy who are entitled to vote. If something occurs which results in a denial of that right to a shareholder, or the admission of invalid votes, then there has been a substantive irregularity, not a procedural irregularity. If some irregularity occurs in the procedure for taking a poll or counting the votes that does not result in the admission of invalid votes or the exclusion of valid votes there has been a procedural irregularity.

101 The irregularity complained of by the plaintiffs is not that invalid proxy votes were counted in the polls. The plaintiffs have not attempted to establish in these proceedings that the proxies that Mr Sanders intended to object to were invalid. The irregularity complained of is the failure of the chairperson to allow Mr Sanders to object to the validity of certain proxies. That is an irregularity in the procedure for voting upon the resolutions.

102 Mr Bennett submits, in effect, that the irregularity in not allowing Mr Sanders to object is not a procedural irregularity that can be validated pursuant to s 1322 because it was a procedural irregularity deliberately achieved.

103 There are cases to the effect that a procedural irregularity deliberately achieved cannot be validated pursuant to s 1322. For example, it has been held that a deliberate choice to convene an invalid meeting is not a "procedural irregularity": P W Saddington & Sons Pty Ltd and the Companies Code (1990) 19 NSWLR 674.

"There would be an interesting situation if the meeting was held where members had come very long distances and it was realised at the commencement of the meeting that there was no quorum, but the people present decided to hold a meeting with a view either to it being ratified later by valid meeting or by the court. Perhaps s 539 would cover that situation. However, I am quite sure that s 539 does not cover the situation where parties actually know that the meeting they are convening is invalid and attend to purport to pass resolutions which they know can only have any validity at all if the court acts under s 539. A deliberate choice to convene an invalid meeting is not a procedural irregularity within s 539."

105 In McGellin v Mount King Mining NL (1998) 144 FLR 288, a meeting of directors lacked a quorum because certain directors had conflicts of interest and duty. Murray J held that what occurred at the directors meeting could not qualify as a procedural irregularity given that the circumstances that constituted the cause of the invalid meeting were known to the directors at the time. Murray J held that participation in and voting upon a matter in breach of a director's fiduciary duty was not a mere procedural irregularity. The director's action was deliberate.

106 Other courts have expressed a different view. In Re Pembury Pty Ltd [1993] 1 Qd R 125, Byrne J refused to follow Saddington and stated that s 1322 should not be limited to procedural irregularities which arise from inadvertence or accidental non-compliance. In Whitehouse v Capital Radio Network Pty Ltd & Ors [2004] TASSC 12; (2004) 48 ACSR 569 the Court held that a meeting which proceeded in the full knowledge of those present that there was no quorum could still be a procedural irregularity within the meaning of s 1322(2).

107 Re Pembury was cited with approval in Re Sidex (supra) at 449. In Sydar Pty Ltd v K Simmonds Finance Pty Ltd (1995) 16 ACSR 384, Santow J said at 393, that s 1322 was a remedial section and consequently should be given a liberal construction. In the course of making that remark, his Honour referred to Re Pembury as an example of a liberal interpretation being given to the section by holding that it was not to be restricted in its scope to instances of inadvertence or accidental non-compliance. In Greig & Anor v Australian Building Industries Pty Ltd [2002] QSC 138 Chesterman J said that he agreed with Byrne J in Re Pembury that s 1322 should be afforded a liberal interpretation to allow the court ample scope to uphold the results of proceedings, legal or corporate, which had not complied with the requisite rules but which have nonetheless not given rise to incurable injustice.

108 I prefer the liberal interpretation given to s 1322(2) by Byrne J in Re Pembury than the more restrictive interpretation adopted by Young J in Saddington. It is not necessary to decide whether or not s 1322(2) automatically validates procedural irregularities deliberately engaged in by the chairperson or others at a meeting in the knowledge that that conduct constitutes an irregularity. The evidence is that Mr Lynch did not deliberately engage in conduct he knew amounted to an irregularity.

109 In this case the action of the chairperson in denying Mr Sanders the opportunity to object to proxy votes by closing the meeting was not a deliberate choice to deny Mr Sanders a right which the chairperson knew Mr Sanders was entitled to exercise. The chairperson believed that he had no obligation to afford Mr Sanders an opportunity to object because he had already made the decision that the proxies were valid and it was too late for Mr Sanders to object after the votes had been cast.

Did the irregularity cause substantial injustice?

110 The Court cannot declare a proceeding to be invalid pursuant to subs 1322(2) of the Corporations Act unless the court is of the opinion that the irregularity has caused or may cause substantial injustice. The distinction between "has caused ... substantial injustice" and "may cause substantial injustice" is temporal and not a difference in the likelihood of substantial justice having been caused. That is, except where the plaintiff alleges that the irregularity may, in the future, cause substantial injustice, the plaintiff must establish that the irregularity has caused substantial injustice. The onus of showing substantial injustice rests on the person who seeks a declaration of invalidity under s 1322(2). In this case the onus rests on the plaintiffs.

111 In the present circumstances, the thing to be done in conducting the poll was to determine the will of the shareholders by putting the resolution to the vote of all shareholders present in person or by proxy at the meeting and entitled to vote.

112 Different approaches may be taken to the question of what must be established by a plaintiff to establish that the irregularity has caused substantial injustice. On one approach a plaintiff would have to prove that the irregularity affected the result of the poll or probably affected the result. On another approach, once a plaintiff established that the irregularity was capable of affecting the result, a respondent must disprove that the irregularity affected the result of the poll. The second approach is not to reverse the onus of proof but to acknowledge that any irregularity has caused substantial injustice if the irregularity is capable of affecting the result of the poll and it is not established whether or not in fact it affected the result. In this case, it is not necessary to determine which approach should be adopted. That is because the plaintiff have failed to establish that the irregularity has caused substantial injustice, whichever approach is adopted.

113 The plaintiffs were wrongly excluded from objecting that certain proxies were invalid. However, that irregularity made no difference to the result of the polls unless as a matter of fact and law the proxies were invalid and their number was such that the result of the polls would have been different if they had not been included in the vote.

114 The evidence does not permit any finding to be made whether or not the proxies objected to were valid. The evidence does not establish that the number of proxies or votes objected to would have made a difference to the result of the poll if they had been excluded. To the contrary, the evidence is that it would have made no difference. The total number of votes identified by the plaintiffs' representatives at the meeting with alleged inadequacies is said by the defendant to be 4,229,165. Ms Currie's note referred to 4,185,000 votes to which objection was or might be taken. The plaintiffs have not identified any further invalid, or allegedly invalid, votes. Resolution 1 was passed by a majority of 6,453,589 and resolution 2 was passed by a majority of 5,953,266.

115 Mr Bennett submitted that if the chairperson had allowed Mr Sanders to put his objections at the meeting it may have caused other shareholders or proxies to change their vote. There are two answers to that. First, I am not satisfied that the chairperson could properly permit a member or proxy to change his or her vote after the declaration of the poll. Secondly, there is no reasonable ground to believe that sufficient members or proxies would or may have changed their votes so as to affect the result of the poll.

116 I decline to make an order under s 1322(2) declaring the resolutions at the meeting to be invalid because I am not satisfied that the irregularity has caused substantial injustice.

117 In his closing oral submissions Mr Bennett submitted that a director of the defendant company, Mr Lynch, whilst acting in the capacity of chairperson of the general meeting, breached his director's duty or acted in breach of his director's fiduciary duty by his conduct as chairman at the meeting. The impugned conduct is Mr Lynch's action in closing the meeting, without first giving Mr Sanders an opportunity to state his objections to certain of the proxies which were counted on the polls in favour of resolutions 1 and 2. Mr Bennett relied upon dicta in Whitlam v Australian Securities and Investments Commission [2003] NSWCA 183; (2003) 57 NSWLR 559.

118 In Whitlam it was held that if the proxy is a director of the company, where the director fails to vote (as proxy) in accordance with the instructions of the member appointing the director as proxy, this will generally not be a breach of the director's duties. According to the New South Wales Court of Appeal, a director who accepts an appointment as proxy will, as agent for the member who made the appointment, have the fiduciary duties of an agent for the member as a principal. In addition, the director is subject to s 250A of the Corporations Act but only in his or her capacity as a proxy, not as a director. In so holding, the New South Wales Court of Appeal overturned the judgment of the trial Judge in which it was held that the chairman of NRMA Ltd had breached his duties as a director by failing to vote proxies in accordance with the directions of members appointing him as their proxy. In its judgment, the Court of Appeal noted that it raised with counsel the possibility that the appellant had a duty as a director to the company to make an appropriate contribution to the proper running of the annual general meeting and in particular to the carrying out of voting procedures, and a duty not to subvert those procedures. This could be viewed as a duty to the company. However, the court expressed no view on these possible arguments, noting they were not raised in the pleadings or during the hearing before the trial Judge.

119 As that matter was raised by Mr Bennett for the first time in his closing oral submissions, I gave leave to senior counsel for the defendant, Mr K Martin QC, to respond in writing. In those written submissions, Mr Martin QC submitted:

(a) Mr Lynch is not a party to these proceedings.

(b) Nothing in the plaintiffs' pre-trial documentation would indicate a likely foreshadowed attack on Mr Lynch as a director (see plaintiffs' further amended statement of issues and relief sought identifying statutory basis for relief and plaintiffs' written submission of 16 February 2006).

(c) Nothing in the plaintiffs' counsel's oral opening indicated an attack on Mr Lynch for breach of his director's duty.

(d) Even the plaintiffs' supplementary written submissions (distributed in court at the commencement of the plaintiffs' counsel's closing oral submissions) do not seem to address the issue of an alleged breach of director's duty or fiduciary duty by Mr Lynch. The most that may be said of them on this basis is that at par 4, the last sentence reads:

"In any event the conduct of Mr Lynch is called into question - relevantly it was misconduct". This statement is equivocal - it could equally refer to the test prescribed in Walls' case for impugning a chairman's decision.

120 I decline to make any order declaring that Mr Lynch breached his duty as a director of the defendant or breached his fiduciary duty as a director for the following reasons.

121 The plaintiffs seek declaratory relief. Declaratory relief is a discretionary equitable remedy. The power to grant a declaration should be exercised with a proper sense of responsibility and a full realisation that judicial pronouncements ought not to be issued unless there are circumstances calling for their making. There is no unqualified rule of practice which forbids the making of a declaration when some of the persons interested in the subject matter are not before the Court. However, as a general rule, it is inappropriate to make a declaration that a person has breached their duty as a director when that person is not before the Court: see Civil Procedure Western Australia at [18.16.2].

122 The issue was not raised in the plaintiffs' further amended statement of issues and relief sought identifying statutory basis for relief. The plaintiffs were ordered to file that statement by Master Newnes on 9 June 2005. The plaintiffs did not raise the contention in either the plaintiffs' written submissions of 16 February 2006 or the plaintiffs' supplementary written submissions dated 16 February 2006, which were distributed in court on 20 February 2006 at the commencement of Mr Bennett's closing oral submissions. The plaintiffs did not raise the contention in opening oral submissions. The contention was not expressly put to Mr Lynch in the course of his cross-examination. The first time the contention was raised, at least expressly, was in Mr Bennett's closing written submissions. In these circumstances it would be unfair to Mr Lynch for the Court to make a finding that he breached his duty as a director of the defendant company.

123 For the reasons I have earlier stated, the irregularity in denying the plaintiffs the opportunity to object to certain proxies did not cause any substantial injustice. That is, the declaration would not remedy any substantial injustice.

124 A declaration that Mr Lynch breached his duty as a director will not lead to resolutions 1 and 2 being void or the issue of the shares consequential upon those resolutions being reversed. In that sense, the declaration would have no practical effect.

125 In his opening oral submissions Mr Bennett submitted that the further relief sought by the plaintiffs was a declaration that the meeting was conducted otherwise than in accordance with the law. I decline to make such a declaration. A declaration in those terms is too broad. Any declaration should specify the particular act and manner of unlawfulness. I have already stated the reasons why I decline to make a declaration that Mr Lynch acted in breach of his duty as a director.

126 I decline to declare that Mr Lynch acted unlawfully, other than by breaching his duty as a director of the defendant. Mr Lynch's conduct in denying the plaintiffs an opportunity to object to proxies was a procedural irregularity. It was a departure from the way in which a chairperson should conduct a general meeting in that it denied the plaintiffs a right which is conferred on them by Article 61. Section 1322(2) validates the proceeding notwithstanding the irregularity. In those circumstances it is not appropriate to declare that the meeting was conducted unlawfully. Furthermore, for the reasons I have stated earlier, the irregularity did not cause any substantial injustice and the making of the declaration would have no practical effect.

127 I decline to make an order under subs 1322(4) declaring the resolutions passed at the general meeting to be not invalid by reason of any contravention of a provision of the Act or a provision of the company constitution. The irregularity was a procedural irregularity and by reason of subs 1322(2) the resolutions are not invalidated.

128 For the reasons stated, the plaintiffs' application by originating process COR 391 of 2004 will be dismissed.

129 The plaintiff's application by originating process COR 389 of 2004 claimed an injunction restraining the defendant company from allotting any shares pursuant to the authorisation by resolution 1 at the general meeting. That application was made before the general meeting on 3 December 2004. It was based upon the plaintiff's claims relating to the right of a member of the company to scrutinise voting and not upon the chairperson refusing to allow the plaintiff to object to certain proxies cast on the polls.

130 In the course of his opening submissions Mr Bennett referred to issues relating to the right of a member of the company to scrutinise voting and expressly elected not to pursue those issues.

131 The relief sought by the plaintiff was primarily an injunction restraining the defendant from allotting any shares pursuant to the authorisation by resolution 1 at the general meeting. The plaintiff elected not to pursue that relief and not to pursue the grounds on which it was originally sought. The plaintiff's application should be dismissed.