The cross-claim
166 The second respondent seeks declaratory relief under s 576-15 of the CATSI Act.
167 Section 576-15(6) and s 576-15(8) of the CATSI Act are fundamental. They are the equivalent of s 1322(4) and s 1322(6) of the Corporations Act. It is common for the provisions of the CATSI Act to be interpreted having regard to parallel provisions found in the Corporations Act (Adams v Yindjibarndi Aboriginal Corp RNTBC [2014] WASC 467; (2014) 104 ACSR 29 at [10] (Kenneth Martin J)), and there was no issue between the parties that it was appropriate in this case to have regard to cases that deal with s 1322 of the Corporations Act.
168 Section 576-15(6) and s 576-15(8) provide as follows:
(6) Subject to the following provisions of this section but without limiting the generality of any other provision of this Act, the Court may, on application by any interested person, make all or any of the following orders, either unconditionally or subject to such conditions as the Court imposes:
(a) an order declaring that any act, matter or thing purporting to have been done, or any proceeding purporting to have been instituted or taken, under this Act or in relation to an Aboriginal and Torres Strait Islander corporation is not invalid by reason of any contravention of a provision of this Act or a provision of the constitution of an Aboriginal and Torres Strait Islander corporation;
(b) an order directing the rectification of any register kept by the Registrar under this Act;
(c) an order relieving a person in whole or in part from any civil liability in respect of a contravention or failure of a kind referred to in paragraph (a);
(d) an order extending the period for doing any act, matter or thing or instituting or taking any proceeding under this Act or in relation to an Aboriginal and Torres Strait Islander corporation (including an order extending a period where the period concerned ended before the application for the order was made) or abridging the period for doing such an act, matter or thing or instituting or taking such a proceeding;
and may make such consequential or ancillary orders as the Court thinks fit.
…
(8) The Court must not make an order under this section unless it is satisfied:
(a) in the case of an order referred to in paragraph (6)(a):
(i) that the act, matter or thing, or the proceeding, referred to in that paragraph is essentially of a procedural nature; or
(ii) that the person or persons concerned in or party to the contravention or failure acted honestly; or
(iii) that it is just and equitable that the order be made; and
(b) in the case of an order referred to in paragraph (6)(c)-that the person subject to the civil liability concerned acted honestly; and
(c) in every case-that no substantial injustice has been or is likely to be caused to any person.
169 A substantive irregularity can be validated by the court under s 576-15(6)(a) of the CATSI Act.
170 A declaration can be made under s 576-15(6)(a) in respect of an invalidity by reason of any contravention of, relevantly, a provision of the Constitution.
171 The prerequisites for the making of an order of validation under s 576-15(6)(a) are prescribed by s 576-15(8)(a). Section 576-15(8)(a) provides that the court cannot make a validating order unless it is satisfied of at least one of the three following conditions, namely:
(1) the matter is essentially of a procedural nature; or
(2) the persons concerned acted honestly; or
(3) it is just and equitable that the order be made.
172 The conditions prescribed in s 576-15(8)(a) are not cumulative. Consequently, the power to make an order under s 576-15(6)(a) is not limited to cases of procedural irregularity: Weinstock v Beck [2013] HCA 14; (2013) 251 CLR 396 at [10] (French CJ).
173 Where one of the conditions in s 576-15(8)(a) is satisfied, the court must not make an order unless it is satisfied that no substantial injustice has been, or is likely to be, caused to any person.
174 The court must also be satisfied that it is the irregularity which occasions the 'substantial injustice' and not the 'proceeding' that caused or may yet cause substantial injustice: Re Pembury Pty Ltd [1993] 1 Qd R 125 at 127 (Byrne J); Chalet Nominees (1999) Pty Ltd v Murray [2012] WASC 147 at [28] (Le Miere J).
175 The onus of showing the fulfilment of one of the three conditions for an order as provided for in s 576-15(8)(a), and the absence of substantial injustice, rests upon the applicant for an order: Australian Hydrocarbons NL v Green (1985) 10 ACLR 72 (Hodgson J).
176 In this case the three contraventions relied upon by the applicant all relate to the same decisions, being the resolutions or decisions to accept the membership applications at the September and November meetings.
177 As to the contravention of r 9.1 by failing to have the minimum number of directors, I do not consider the contravention is procedural: Re Continental Pacific Insurance Company (Aust) Ltd; Gosford Christian School. It is substantive.
178 As to the failure to maintain a quorum, the invalidity is in a sense subsumed by the first contravention. In the usual case, there is no doubt that lack of a quorum may, depending on the circumstances, be considered a procedural contravention particularly where it does not alter the essential outcome of a meeting. However, this is not a straight forward case of lack of quorum by failing to meet a numerical number, but also a case of failure to achieve a quorum because one could not properly be constituted at all. That leads me to the view that the contravention is substantive, but the outcome is no different regardless: I must still consider the issue of whether the irregularity caused or causes substantial injustice.
179 As to the failure to consult, I do not consider the contravention is procedural.
180 In Sandy v Yindjibarndi Aboriginal Corporation, Le Miere J set out the following principles in considering whether the failure to give reasonable notice to a director raised a procedural or substantive irregularity (at [46]):
In Re Sidex Australia Pty Ltd (Receiver and Manager Appointed); Sipad Holdings DDPO v Popovic (1995) 18 ACSR 436, 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 a omission but not where the parties have tried to do something which the Act does not authorise. The Court of Appeal took the same approach in Smolarek v Liwszyc [2006] WASCA 50; (2006) 32 WAR 129 [59]. In Cordiant Communications (Australia) Pty Ltd v The Communications Group Holdings Pty Ltd [2005] NSWSC 1005; (2005) 55 ACSR 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, 543 - 544 and continued:
In the light of this observation and of the decisions in Industrial Equity, ANZ Nominees, Scallion and Link Agricultural I think that the following general propositions may be formulated for the purposes of the application of Corporations Act 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 [103].
181 It seems to me that the obligation on the directors (leaving aside the competency issue) was to determine membership applications having consulted with the Council of Elders. The failure to consult changed the substance of the determination and the irregularity was substantive. On the evidence before me, the irregularity is not as to how to go about the consultation process (where and when, for example) but the failure to carry out the substantive and mandatory task of consultation itself.
182 The question then is the application of s 576-15(8)(a). I am not satisfied that the relevant contraventions are essentially of a procedural nature, so the first limb is not met. As to the question of honesty for the second limb, I considered the meaning and application of the term in ICandy Interactive Limited, in the matter of ICandy Interactive Limited [2018] FCA 533; (2018) 125 ACSR 369 at [54]-[84]. I do not consider there is evidence from which I can properly infer a lack of honesty on the part of the persons involved in the contraventions. I acknowledge that it is the conduct of NAC and its directors that is in question, and not that of the respondents. The task for a respondent in meeting the onus of establishing that relevant persons acted honestly might in some cases be quite difficult, depending on the evidence available to it. For example, in this case the reasons for the contraventions have not been fully exposed by NAC. However, whether or not the honesty limb is satisfied is not relevant to the disposition of this case as in any event I am satisfied (for reasons explained below) that the irregularities caused or may have caused substantial injustice that cannot be remedied by an order of the court.
183 The respondents' submissions on the just and equitable limb also apply to the issue of substantial injustice (see below).
184 The respondents' submissions centre around delay to date in assessing the applications; the potential loss of access to benefits; the prospect that they would be barred from applying again for membership because of r 5.2.2(b) (if a person who has within the past five years been removed as a member, they are not eligible for membership under r 5.2.2); and the risk of demand for repayment of benefits received.
185 The issue of delay in the original assessment of the applications seems to me to be a consequence of the proceedings and not the irregularity, as explained in Gosford Christian School and Re Pembury Pty Ltd. The Court is not now concerned with broader issues as to any alleged breaches of duty on the part of the directors during the membership assessment process.
186 The point as to removal from the register can be disposed of: counsel for NAC submitted that r 5.2.2(b) could not be invoked in circumstances where 'removal' from the register was performed in circumstances where the directors' acceptance of membership was declared invalid, in contrast to a valid membership being cancelled. Certainly it seems to me that r 5.2.2(b) is not intended to apply in circumstances such as removal from the register by this court process. Further, NAC has already informed the new members in writing that it will reconsider their applications 'in the near future' in the event the resolutions and decisions of the September and November meetings are invalid. Against that backdrop it would be wholly inappropriate and potentially a breach of the duty of good faith for the board to now seek to rely on r 5.2.2(b) to avoid an immediate and timely process of re-determining the membership applications.
187 There is legitimate concern by the respondents as to the loss of access to benefits through further delay in the assessment process. I do not know what course may or may not be undertaken by the trustee or custodial trustee with respect to access to benefits. Those are not steps to be taken by NAC. I acknowledge the potential prejudice to the respondents and take it into account in weighing all the matters that are relevant to the question of substantial injustice.
188 I also acknowledge the respondents' concerns that the trustee may seek to recover from them benefits they have received in the intervening period. I accept the submission made by counsel for NAC that recipients may have strong arguments that they received their payments in good faith and changed their position as a result of receipt of those payments. I also note counsel's submission that the cost of recovery by a trustee may reduce the prospect of a trustee seeking to recover small payments. The reference to 'small' is only in the context of that submission - I do not deny the value of such payments to the recipients. I cannot speculate as to the prospect of steps being taken by the trustee to recover payments. Those are matters for the trustee, taking into account its duties and obligations. I am not in a position to know of or direct any steps that might be taken by the trustee.
189 The second respondent also submitted that I should have regard to the fact that many of the directors of NAC or similar bodies are not necessarily experienced directors. In Weinstock v Beck, French CJ emphasised that corporations in contemporary Australian society serve the purposes of a range of enterprises operated by men and women, some of whom are sophisticated and knowledgeable on matters of corporate governance, and some of whom are not. The legislation reflects recognition of the fact that mistakes occur and it is not in the public interest that the validity of decisions be unduly vulnerable to innocent mistakes which may be corrected without injustice to third parties (at [39]).
190 I have taken into account those important comments in my approach to the relevant irregularities and s 576-15(8). For example, I accept that the directors of NAC may not have appreciated the significance of maintaining the minimum number of directors, and in circumstances where its Constitution has so little room for error in that regard. However, the internal management of corporations such as NAC, which have the capacity to impact upon a large number of people, must be undertaken carefully and with due support and accountability. I also note that based on the financial report referred to above, NAC from time to time has significant funds under its management. The Constitution provides the framework for good governance as agreed between the company and its members. In this case, it is the consultation obligation in particular that I have found to be central to the membership application process, and even allowing for perhaps some inexperience on the part of the directors (and there is no evidence as to such matters), I am not satisfied that it would be just and equitable to validate the contraventions.
191 In coming to this view I have taken into account all of the matters raised by the respondents. However, meeting any of the limbs in s 576-15(8)(a) is not decisive in this matter, as I am of the opinion that the irregularities caused or may cause substantial injustice that cannot be remedied by an order of the court.
192 In coming to this view, I have been assisted by a number of cases that deal with the absence from a meeting of directors or members, where those persons may have provided information or knowledge that may have affected the outcome of the meeting. I consider there is some analogy between the denial of an opportunity to convey information considered in such cases with the circumstances in this case of failure to consult or failure to provide the opportunity to elders to consult. I also take into account the hypothetical contribution of the one additional director who should have been on the board.
193 In Sandy v Yindjibarndi Aboriginal Corporation, Le Miere J held that a meeting was invalid because its directors had ceased to hold office, but considered a further argument about the failure to give notice of a meeting to a director. His Honour considered the irregularity to be procedural, but was of the opinion that the notice irregularity caused or may cause substantial injustice. The failure to give reasonable notice to the director caused her to not attend the meeting, a meeting which was convened to consider membership applications. The directors' meeting lasted more than five hours and at previous meetings the issue had resulted in a deadlock. The outcome of a directors' meeting was to be by general consensus. Le Miere J said (at [49]):
Membership applications are the subject of proceedings in this court and of a mediation conducted by Chaney J. Middleton Cheedy explained that at the directors' meeting the directors present considered each applicant and discussed what they each knew of the applicants of their own knowledge. Given the requirement that the directors' decision-making be by consensus it is not possible to say that the outcome of this, and other agenda items, would not have been different if Ms Tucker had received notice and attended the meeting. For that reason, I am of the opinion that the irregularity in failing to give Ms Tucker reasonable notice of the meeting caused or may have caused substantial injustice that cannot be remedied by an order of the court. If the meeting had not been invalid because directors had ceased to hold office, I would have declared it to be invalid by reason of the procedural irregularity in failing to give reasonable notice of the meeting to Ms Tucker.
194 Other cases where a common feature is that a member or director was denied an opportunity to attend a meeting or make representations to members and such failure was found to constitute substantial injustice include BI Constructions Pty Ltd v Shad [2010] NSWSC 484 at [37] (Slattery J) (the court is likely to make a declaration of invalidity no matter how unlikely it may be that the complainant who was denied an opportunity to speak will be able to persuade a future meeting to vote differently); and Dick v Comvergent Telecommunications Ltd [2000] NSWSC 331; (2000) 34 ACSR 86 at [17] (Windeyer J) (removal of a right for a director to make representations resulted in a scenario where it is not possible to determine what might have occurred).
195 The second respondent relies on those cases where the facts suggest there would have been no different outcome at a meeting but for the contraventions: Bovis Lend Lease Pty Ltd v Wily [2003] NSWSC 467; (2003) 45 ACSR 612 at [260] (Austin J); Cordiant Communications (Aust) Pty Ltd v The Communications Group Holdings Pty [2005] NSWSC 1005; (2005) 55 ACSR 185 (Palmer J). The second respondent points to the resolutions at the September and November meetings being unanimous, and submitted that even if there had been another director appointed, it would have made no difference to the outcome. I cannot be satisfied that would be the case, taking into account the nature of the matters being considered by the directors and the knowledge a director may have contributed at the meeting had they attended. However, the point cannot be considered in isolation. Even if the appointment or presence of an additional director would have made no difference to a vote, I must also take into account the consultation contravention.
196 I am not satisfied that the result of the determinations would have been the same had the consultation process with the Council of Elders envisaged by the Constitution been complied with, for the reasons I have already given as to the potential knowledge contribution that may have been made through such consultation. The view of the directors (and the elders present) may have changed with different information. There is a prospect that some applications may have been rejected.
197 I have discussed above the potential injustice to the respondents. The rights of the pre-existing members must also be given careful consideration. Those persons have voting rights that will be affected by an invalid expansion of the membership pool, and the process of removal of members under r 5.7.1 may well be costly and inefficient. The effect on headcount voting on acceptance of the new members is in the vicinity, I was told, of 28%. That is, the new members would comprise some 28% of all members. There is no doubt that an invalid dilution of voting rights is a matter that is substantive in nature: Rana v Survery (No 2) [2012] NSWSC 905 at [36]-[37] (Pembroke J) (affirmed on appeal in Rana v Survery [2013] NSWCA 234 (Bathurst CJ, Macfarlan and Hoeben JJA)). I consider the risk of wrongly inflated membership and wrongly diluted voting rights may result in substantial injustice to the pre-existing members. It is clear that the pre-existing members also have rights to benefits under the trusts but I am not in a position to assess whether such indirect benefits would be diluted or otherwise affected.
198 It follows that it is my view that the irregularities caused or may have caused substantial injustice that cannot be remedied by an order of the court, and the cross-claim must be dismissed.
199 For completion, I note that:
(a) Ms Mowarin and NAC's solicitor provided evidence (summarised above under the heading 'Evidence') that was intended to persuade me that mistakes had been made as to the acceptance of particular members and that there was information that established such errors. Ms Mowarin was one of the directors who supported the respective resolutions at the time. She does not say whether or not the information referred to was brought to the attention of the directors at the time. It is unnecessary for me to consider further those particular factual matters in light of the outcome of the application; and
(b) the first respondent did not provide written submissions on the application or bring a cross-claim but during the hearing generally adopted the position of the second respondent.