NRMA LIMITED v SNODGRASS

COUNSEL : Appellant: B R McClintock SC/ R S Hollo Respondent: A Hartnell (Sol) SOLICITORS : Appellant: Corrs Chambers Westgarth Respondent: Atanaskovic Hartnell CATCHWORDS : Company Law - members' requisition for general meeting to put resolution to amend Constitution - amendment to require board election campaign funding details to be fully disclosed - whether meeting convened for proper purpose - NRMA v Parker (1986) 6 NSWLR 517 distinguished -whether amendment would constitute oppressive conduct - whether proposed article so vague as to be meaningless - whether amendment retrospective in effect (D) LEGISLATION CITED : Corporations Law, ss203D, 232-233 Browne v Panga Pty Ltd (1995) 14 WAR 393 Gambotto v WCP Ltd (1995) 183 CLR 432 CASES CITED: Isle of Wight Railway Co v Tahourdin (1883) 25 ChD 320. NRMA v Parker (1986) 6 NSWLR 517 Totally & Permanently Incapacitated Veterans' Association of NSW Ltd v Gadd (1998) 28 ACSR 549 DECISION : Appeal dismissed with costs.

IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL

CA 40113/2001 SC 4929/2000 MASON P MEAGHER JA SHELLER JA

Wednesday 12 September 2001 NRMA LIMITED v William SNODGRASS

JUDGMENT 1 MASON P: The NRMA is widely known as a service organisation and as a body racked by disputation over its structure and governance. The main venues of dispute have been the boardroom, the general meeting and the court. This appeal touches all three venues. It concerns a members' requisition for a general meeting to put a resolution to amend the Constitution affecting a group of board members. Fittingly, the leading authority cited is National Roads & Motorists' Association v Parker (1986) 6 NSWLR 517 (Parker). 2 In its current form, the much-amended Constitution of the NRMA provides for a board of 16 with half retiring in 2001 and half in 2003. Leaving aside casual vacancies, half the current board was elected in 1997 and half in 1999. Membership of NRMA is essential for board membership. 3 The requisitionists (represented by the respondent pursuant to Pt 8 r11) have complied with the statutory formalities (see Corporations Law (now Corporations Act), ss249D, 249P) for requesting the calling of a meeting and the distribution of an explanatory statement. The resolution proposed is: 1. That the Constitution of NRMA Limited be amended by inserting a new Rule 161, in the following terms: "All directors elected to the Board in the 1999 half board election shall publish to members in the [following] report to members, full details of their election campaign funding including details of all donations and advertising, donated advertisements, and all other provided services. After each election of Directors the candidates who are elected shall be required to publish the same details of their election campaign as required by the preceding sub-paragraph. Any Director who fails to fully comply with this rule to be forever disqualified from serving on the NRMA Limited Board." 4 The explanatory statement includes the following: The need for this new rule to be inserted into the constitution of NRMA Limited is highlighted by what happened during the 1999 NRMA Ltd half-board elections, when Nick Whitlam fielded a team of eight candidates known as the "Members First" group. This group ran a massive, extremely costly advertising campaign which ensured that all eight members of Whitlam's faction were elected to the board. The question is WHO PAID FOR THIS MAMMOTH CAMPAIGN AND WHY? This question has never been answered. … We, the members of NRMA Ltd are entitled to know, because only a full disclosure of the details of all election funding by directors elected to the board in 1999 and in the future, as asked for in this resolution, can ensure that members will be fully informed. The potential for graft and conflicts of interest as a result of non-disclosure is enormous - even political parties are compelled to disclose donations exceeding $1,500.

5 In recording this argumentative material I am merely setting the proposal in the context chosen by the requisitionists. I must not be taken to be finding whether or not the resolution ought to be supported by members. 6 This appeal challenges Windeyer J's refusal to declare the requisition invalid and to restrain the presentation of the requisition to NRMA (see NRMA Ltd v Snodgrass [2001] NSWSC 76). 7 Windeyer J held that NRMA had failed to demonstrate that the meeting would be called for an improper purpose. He rejected various arguments, some of which have been repeated in this Court. 8 I agree with Windeyer J's reasons concerning the impugned resolution. 9 The proceedings below also involved a second disputed requisition, relating to the payment of the legal costs of earlier litigation, but that dispute is no longer current. 10 The members' meeting must be held for a proper purpose (s249Q) and consideration of a proposal to amend the Constitution is such a purpose. 11 Parker is clearly distinguishable because the proposed resolution in that case did not seek to amend the Articles of Association and because it sought in effect to exercise a power vested exclusively in the board by the Articles. The requisitionist in that case conceded the invalidity of the resolution (see at 521). McLelland J distinguished the situation that would prevail if the requisition sought to convene a meeting for the purpose of altering the Articles (see at 522-3). 12 Here the resolution is of the latter type. What then is the objection to it being put to the meeting? 13 The contract embodied in the Constitution is inherently capable of amendment (ss136, 140) and no special contract as between the 1999 directors and the company is invoked. However, the appellant submits that the members' power to vary the Constitution is unavailable if the amendment would constitute oppressive conduct. Reliance is placed upon the following statement of the majority justices in Gambotto v WCP Ltd (1995) 182 CLR 432 at 444: In the context of a special resolution altering the articles and giving rise to a conflict of interests and advantages, whether or not it involves an expropriation of shares, we would reject as inappropriate the "bona fide for the benefit of the company as a whole" test of Lindley MR in Allen v Gold Reefs of West Africa Ltd [[1900] 1 Ch 656 at 671] . The application of the test in such a context has been criticized on grounds which, in our view, are unanswerable. It seems to us that, in such a case not involving an actual or effective expropriation of shares or of valuable proprietary rights attaching to shares, an alteration of the articles by special resolution regularly passed will be valid unless it is ultra vires, beyond any purpose contemplated by the article or oppressive as that expression is understood in the law relating to corporations.

14 NRMA submits that the proposed rule 161 would be oppressive in the sense that it would provide grounds for relief in accordance with ss232-233. The proposed resolution is impugned on the ground that the amendment to the Constitution would, if passed, be unfair, discriminatory and oppressive to the eight directors elected in 1999 and the members who then supported them. Four badges of oppression were identified in relation to the proposed rule:

1. it does not extend to the directors elected in 1997;

2. the sanction of being "forever disqualified from serving on the NRMA Limited board" is unfair and harsh;

3. if passed, the resolution would effect an unlawful removal of directors from office, contrary to s203D of the Corporations Act ;

4. the rule is retrospective in operation. 15 To justify the company itself moving to restrain its constituent body from even considering the amendment would require the court, at the very least, to be clearly satisfied that the proposed resolution would necessarily be oppressive in the sense of being "oppressive to, unfairly prejudicial to, or unfairly discriminatory against" (s232(e)). Windeyer J gives compelling reasons why this onus was not satisfied (at ss23-32 of his judgment). 16 The proposed rule is prospective in operation (even as regards the 1999 directors) because it does no more than treat past events (the 1999 election) as the basis for a future prescription and it does so in circumstances where the directors elected in 1999 point to no special or vested contract (see La Macchia v Minister for Primary Industry (1986) 72 ALR 23, Bailey v New South Wales Medical Defence Union Ltd (1995) 184 CLR 399 at 410-412). 17 If passed unamended, the new rule would not extend to the directors elected in 1997, but (on the materials before us) there is nothing unfairly discriminatory about that. No shareholders' class rights are involved. The appellant accepts that such a rule could have been inserted prospectively. The requisitonists' explanatory statement (supra) offers reasons for including the 1999 directors. In the absence of evidence establishing that it is oppressive to discriminate in this way, the court must leave it to the good sense of the members to decide whether they want the new rule, leaving it to those with standing to challenge the validity of the rule if and when it is passed. 18 The same can be said about the "sanction" stipulated in the tail end of the proposed rule. I am inclined to think that "to be forever disqualified" would effect a disqualification from future candidacy as distinct form an immediate vacation of office. Be that as it may, the sanction would fall upon directors who chose not to comply with the mandate of the new rule. 19 When and if the rule is inserted unamended into the Constitution, when and if the 1999 directors choose not to comply, and when and if someone contends that s203D applies and has not been complied with, will be the time to consider the relationship between s203D and the Constitution (cf Browne v Panga Pty Ltd (1995) 14 WAR 393 at 404-5, 17 ACSR 75 at 85-6). The mere alteration of the Constitution by inserting rule 161 will not trigger the removal of any director. 20 In written submissions NRMA argued that rule 161 is so vague as to be meaningless (cf Upper Hunter District Council v Australian Chilling & Freezing Co Ltd (1968) 118 CLR 429, Totally & Permanently Incapacitated Veterans' Association of NSW Ltd v Gadd (1998) 28 ACSR 549 at 556 (Veterans' Administration)). It was submitted that the resolution must stand or fall in its entirety. Re Harbour Lighterage Ltd & The Companies Act [1968] 1 NSWR 439 was cited, but that case involves an explanatory statement, portion of which was defamatory and, for that reason, a badge of abusive purpose. The case is therefore not in point. Young J was prepared to allow severance of partially invalid material in Veterans' Administration. 21 The proposed article is not so demonstrably vague as to be meaningless. Applying that standard, declaratory and injunctive relief restraining the meeting was properly refused. 22 In one of the earliest decisions as to requisitions, the English Court of Appeal urged curial restraint in construing notices of meeting and in precluding members from exercising such limited powers as they possess as regards company governance (Isle of Wight Railway Co v Tahourdin (1883) 25 ChD 320. Cf also Wayde v New South Wales Rugby League Ltd (1985) 180 CLR 459 at 467-8). The English decision also supports the conclusion that requisitionists' notices will be construed with regard to the possibility that ambiguities can be debated and modified. The same can be said about debatable grounds of distinguishing between board members elected in one year and those elected at another time. Oppression or abuse of power will not be presumed in cases such as the present: it must be clearly proven before it would be proper to intervene preemptively. 23 The appeal should be dismissed with costs. 24 MEAGHER J: I agree with Mason P. 25 SHELLER JA: I agree with Mason P.

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