National Electrical Contractors Association v Electrical and Electronic Group Training Ltd [1995] FCA 836

Coram: Olney J Place: Melbourne Date: 16 October 1995 REASONS FOR JUDGMENT When this matter came before the Court on 13 October 1995 there was a change in the representation of some of the parties to the proceedings following elections in the CEPU. The solicitors acting for the union ceased to represent the union and the solicitors who had previously acted for two other union members were instructed to represent the union. Mr White of Ryan Carlisle Thomas appeared to seek, and was granted, leave to withdraw as solicitor for Messrs Main and Gray whose interests had ceased to be the same as those of the union. Mr White had clearly been placed in a position of conflict. However, Mr Zigouras was in court and announced his appearance for Messrs Main and Gray. Obviously he had not long been instructed but from the evidence on the file I am satisfied he has had an extensive involvement with Messrs Main and Gray and was fully aware of the issues in this proceeding so far as they related to his clients. Mr Zigouras sought to have the matter further adjourned pending the holding of new elections for some of the offices in the union, such elections having been ordered by the Industrial Relations Court. I did not rule on the adjournment application but decided to hear submissions of the other parties on the merits of the application and to deal with the two matters together. Having heard the parties' submissions I stood the matter over until this morning to give me the opportunity to review the material which is before the Court. I have decided that the adjournment application should be refused. It has not been made to appear to me that the results of the new elections in the CEPU will necessarily have any effect on the position of the union representation on the board of the company as it is presently constituted. It is in the interests of all concerned to have this matter resolved without further delay and accordingly I propose to deal with the application. The application was initially filed on 10 August 1995 and is brought by the National Electrical Contractors Association which is a member of the respondent company, Electrical and Electronic Group Training Limited. The other members of the company are the CEPU and the four other original subscribers to the memorandum of association, of whom two (Messrs McKern and Glynn) represented the interests of the applicant and two (Messrs Main and Gray) represented the interests of the CEPU. The four non-corporate subscribers were necessary to make up the minimum number of members required to comply with the law. The applicant believes that the affairs of the company are being conducted in a manner that is contrary to the interests of the members as a whole. In the application, the applicant sought orders pursuant to s 260 of the Corporations Law, namely an order appointing a receiver and manager of the company, an order altering the constitution of the company to allow for the appointment of an independent chairman and, in the alternative, an order for winding up. On 27 September 1995 the application was amended to seek only an order for the winding up of the company. In the period intervening between 14 September 1995 when the matter was last before the Court and the adjourned hearing on 13 October 1995 changes occurred in the management of the CEPU and when the matter came before me on 13 October 1995 the applicant and the CEPU, by an agreement reached between them, sought an order amending the articles of the company in a number of respects including, but not limited to, an amendment to the effect of that originally sought, but later abandoned when the application was amended. By notice of motion returnable on 13 October 1995 the CEPU also sought orders for the amendment of the articles and in addition sought an order for the removal of Messrs Main and Gray as members of the company. It is unnecessary to canvass the allegations and counter-allegations of fact made in the affidavit evidence, nor is it necessary to refer to the structure of the company otherwise than to observe that it is and has always been intended to be, in effect, a partnership between the CEPU and the applicant in which each is equally represented on the board of directors and in which each controls an equal share of the voting power of the members in general meeting. It is clear that at the time the application was filed the company was deadlocked, both at the board level and at the membership level. I am satisfied that those deadlocks meant that the affairs of the company were being conducted in a manner that was contrary to the interests of the members as a whole. That being so the Court's power to make orders under s 260(2) of the Corporations Law has been enlivened. The deadlock at the board level has now been resolved, but by reason of fact that Messrs Main and Gray are not willing to accept direction from the CEPU as to their voting as members of the company, the deadlock at membership level remains. I am of the opinion, based upon the affidavit evidence filed in this proceeding, that it is in the interests of the members as a whole that the articles be amended so as to provide at least one independent director in order to avoid the occasion for further deadlock at board level. Despite the fact that the only relief sought in the amended application is winding up, I do not think that such relief is appropriate and it would not be in the interests of the membership for the company to be wound up. Although s 260(2) seems to envisage the possibility of the Court ordering alterations to the constitution of a company there is some authority to suggest that such alterations should not radically alter the balance of power in the company. I refer to the decision of the New South Wales Court of Appeal in Hannes v MJH Pty Ltd Limited (1992) 10 ACLC 400. The amendments presently sought do not seek to alter the balance of power but rather some of the proposed amendments seek to remove the occasion for deadlock. The Court should nevertheless not embark upon a wholesale revision of the articles of association, particularly as by virtue of s 260(2) the company must thereafter seek the leave of the Court if it wishes to make any further alteration inconsistent with a Court ordered alteration. In my view the power of the Court to alter the articles of a company should be exercised sparingly and only when and to the extent absolutely necessary to protect the interests of the members. In the present case I believe that a more satisfactory alternative to the Court ordering that the articles be amended is to make orders which will facilitate the breaking of the deadlock amongst the members so as to enable the company to make whatever amendments to the constitution of the company the members think appropriate. I have already mentioned the position of Messrs Main and Gray. I regard them as being in the nature of trustees of the interests of the CEPU. They have no personal proprietary interest in the company. They are clearly not prepared to accept direction from the present management of the CEPU. Although they have been requested by the CEPU to do so, they have declined to resign their membership of the company. In my opinion, in the circumstances as they now exist, Messrs Main and Gray should resign so that they can be replaced by members who are willing to give effect to the directions of the CEPU. I propose therefore to exercise the powers which the Court has under s 260(2) including the power conferred by paragraph (k) to make the following orders: (1) That Gary Norman Main forthwith resign as a member of the respondent and in the event of him failing to do so by 4.00pm on 16 October 1995 a notice in writing in his name signed by the District Registrar for and on his behalf resigning his membership shall be treated as his resignation for the purposes of Article 7(b) of the Articles of Association of the respondent; (2) That Richard John Gray forthwith resign as a member of the respondent and in the event of him failing to do so by 4.00pm on 16 October 1995 a notice in writing in his name signed by the District Registrar for and on his behalf resigning his membership shall for all purposes be treated as his resignation for the purposes of Article 7(b) of the Articles of Association of the company; (3) The District Registrar is authorised and required to sign any notice necessary to give effect to orders (1) and (2); (4) Upon the resignation of Gary Norman Main and Richard John Gray becoming effective the directors of the respondent convene a general meeting of the respondent in accordance with the Articles of Association for the purpose of appointing two persons approved by the governing body of the CEPU as members of the respondent; (5) The injunction granted by Ryan J on 10 August 1995 and continued from time to time thereafter be dissolved; (6) The application be otherwise dismissed; (7) For the purposes of enabling proper effect to be given to this order any party to the proceeding shall have liberty to apply on at least three days notice in writing to all other parties. I certify that this and the preceding 6 pages are a true copy of the Reasons for Judgment of the Honourable Justice Olney

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Judgment (4 paragraphs)

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