NRMA Limited v Snodgrass

1 THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

4929/00 NRMA LIMITED v WILLIAM SNODGRASS JUDGMENT Introduction 1 NRMA Limited (NRMA) seeks an order that the defendant, Mr Snodgrass be permanently restrained from lodging with the company requisitions signed by the required number of members of NRMA requiring a general meeting of members to be called to consider two proposed resolutions. NRMA says that the meeting would not be called for a proper purpose and therefore it should not be required to call it. Facts 2 Mr Snodgrass is a member of NRMA. He is the moving party in collecting signatures of members to a request that the directors of NRMA call a general meeting of members to consider the following resolutions: That the Constitution of NRMA Limited be amended by inserting a new Rule 160, in the following terms: "NRMA Limited shall indemnify and forthwith pay to Richard James Talbot or as he directs the whole of his legal costs of $528,000 in connection with his appearance as an Objector to the demutualisation of NRMA Insurance Limited in proceedings No. 5131 of 1999 and No. 5132 of 1999 in the Supreme Court of New South Wales Equity Division, in which the NRMA Limited and NRMA Insurance Limited applied for approval of various Schemes of Arrangement. 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 of the next falling 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." 3 On 8 December 2000 Bryson J appointed Mr Snodgrass, pursuant to Pt 8 r11 of the Court Rules, "to represent all persons who have executed documents in the form of the said requisition". It was accepted as a fact in the hearing before me that Mr Snodgrass had obtained the signatures of over one hundred members to each of the two notices, there being separate notices in respect of each resolution. Insofar as the order of Bryson J would not encompass persons who have executed a requisition since 8 December 2000, I would propose to extend the order to cover those persons. 4 By summons filed on 7 December 2000, NRMA seeks:

(a) a declaration that the requisition documents do not constitute valid requisitions under the rules of NRMA or the Corporations Law and will not, if presented to NRMA, constitute such valid and effective requisitions;

(b) an interlocutory and final order restraining Mr Snodgrass from presenting the requisitions to NRMA.

An interlocutory order was made by Bryson J on 8 December up to 14 December and after a further hearing, continued by me up to the determination of this action. 5 Mr Talbot is a former director of NRMA. He was opposed to the demutualisation process of NRMA and NRMA Insurance Limited, which received considerable publicity during 1999 and 2000 and which ultimately resulted in NRMA Insurance Limited, becoming a company limited by shares with numerous shareholders, NRMA remaining a company limited by guarantee. He appeared before Santow J opposing the giving of court approval to the schemes of arrangement involving NRMA Insurance Limited and NRMA which were eventually approved by order of Santow J made on 19 May 2000. In each separate proceeding, Santow J ordered that the plaintiffs, namely NRMA Limited in proceedings 5131 of 1999 and NRMA Insurance Limited in proceedings 5132 of 1999, "pay the reasonable solicitor/client costs of Mr Talbot in respect of the approval hearing up to and including 18 May 2000 as agreed or assessed. 6 Messrs Camilleri, solicitors, who acted for Mr Talbot have sent two bills of costs to Mr Talbot. Both are dated 30 June 2000. Both have summary sheets headed "Talbot - NRMA Limited & NRMA Insurance Limited - applications for court approval of schemes of arrangement". Itemised bills are attached to both summary sheets. One is headed in the same way as the summary and is for a total amount of $245,847 solicitors costs. The second in itemised form is headed "Talbot NRMA application for scheme arrangement". It is for $193,890 solicitors costs and $89,096.20 disbursements. The disbursements include $79,730.00 for counsel's fees due to Mr A.B. Shand, QC. The combined total of the bills of $528,827. Nothing was put to me by counsel about there being two bills and I cannot discern the reason for this or the separate headings, particularly as counsel's fees obviously relate to both proceedings. 7 Mr Shand had signed a fee agreement with the solicitors, Messrs Camilleri. Paragraph 7 of that agreement was as follows: 7. No fees will be payable except in the event of orders for costs being made in favour of the client, in which event fees payable to me will equate to the amount which may be recovered by procedures of assessment or the like or negotiation following upon such orders for costs, the intent being that none of my fees will be the responsibility of the client himself. 8 So far as is relevant charges were set as $8,000 per day of hearing or part thereof for appearances in court and $950 per hour for work done out of court and for preparation. On his memorandum of fees dated 20 June 2000, it seems Mr Shand may have made an error for the fees charged for 5 May 2000. It seems there could be some double counting and therefore an overcharge or over-claim of at least $4,000. Relevant provisions of Corporations Law and Constitution of NRMA Corporations Law SECTION 249D

Calling of general meeting by directors when requested by members (1) The directors of a company must call and arrange to hold a general meeting on the request of: (a) members with at least 5% of the votes that may be cast at the general meeting; or (b) at least 100 members who are entitled to vote at the general meeting.

(1A) The regulations may prescribe a different number of members for the purposes of the application of paragraph (1)(b) to: (a) a particular company; or (b) a particular class of company.

Without limiting this, the regulations may specify the number as a percentage of the total number of members of the company. (2) The request must: (a) be in writing; and (b) state any resolution to be proposed at the meeting; and (c) be signed by the members making the request; and (d) be given to the company.

(3) Separate copies of a document setting out the request may be used for signing by members if the wording of the request is identical in each copy.

(4) The percentage of votes that members have is to be worked out as at the midnight before the request is given to the company.

(5) The directors must call the meeting within 21 days after the request is given to the company. The meeting is to be held not later than 2 months after the request is given to the company.

A meeting of a company's members must be held for a proper purpose.

Division 3 - Resignation, retirement or removal of directors … SECTION 203D

(1) A public company may by resolution remove a director from office despite anything in: (a) the company's constitution (if any); or

(b) an agreement between the company and the director; or

(c) an agreement between any or all members of the company and the director.

If the director was appointed to represent the interests of particular shareholders or debenture holders, the resolution to remove the director does not take effect until a replacement to represent their interests has been appointed.

Note: See sections 249C to 249G for the rules on who may call meetings, sections 249H to 249M on how to call meetings and sections 249N to 249Q for rules on members' resolutions.

Notice of intention to move resolution for removal of director

(2) Notice of intention to move the resolution must be given to the company at least 2 months before the meeting is to be held. However, if the company calls a meeting after the notice of intention is given under this subsection, the meeting may pass the resolution even though the meeting is held less than 2 months after the notice of intention is given.

Note: Short notice of the meeting cannot be given for this resolution (see subsection 249H(3)).

(3) The company must give the director a copy of the notice as soon as practicable after it is received.

(4) The director is entitled to put their case to members by: (a) giving the company a written statement for circulation to members (see subsections (5) and (6)); and

(b) speaking to the motion at the meeting (whether or not the director is a member of the company).

(5) The written statement is to be circulated by the company to members by: (a) sending a copy to everyone to whom notice of the meeting is sent if there is time to do so; or

(b) if there is not time to comply with paragraph (a) - having the statement distributed to members attending the meeting and read out at the meeting before the resolution is voted on.

(6) The director's statement does not have to be circulated to members if it is more than 1,000 words long or defamatory.

(7) If a person is appointed to replace a director removed under this section, the time at which:

is to retire is to be worked out as if the replacement director had become director on the day on which the replaced director was last appointed a director. Constitution of NRMA Limited Board of Directors

52. Subject to the Law and to any other provisions of the Constitution, the management and control of the Association and of the business and affairs of the Association shall be vested in the Directors who may exercise all such powers of the Association and do all such acts or things as are not by the Constitution or by the Law expressly required to be exercised or done by the Association in a meeting of members. No rule made or resolution passed by a meeting of members shall invalidate any prior act of the Directors which would have been valid if that rule or resolution had not been made or passed. … APPOINTMENT AND REMOVAL OF DIRECTORS … 86. In addition to the circumstances in which the office of Director becomes vacant by virtue of the Law or other provisions of the Constitution, the office of Director shall, by the very fact, be vacated if the Directors: (a) becomes mentally incapable or the Director's estate is liable to be dealt with in any way under the law relating to mental health; (b) is absent from meetings of the Board of Directors for a continuous period of 3 months without special leave of absence from the Board of Directors; (c) commences in the regular employment of the Association, NRMA Insurance Limited or one of their respective subsidiaries; or (d) ceases to be a member. Arguments 9 NRMA, through its Senior Counsel Mr McClintock SC, argued that the meetings sought by the requisitions would not be called for a proper purpose and thus ought not to be required to be called. It is necessary to deal with each resolution proposed separately, but some preliminary comments are necessary. 10 First, it has not been suggested that Mr Snodgrass or, for that matter, any of the requisitionists have themselves an improper purpose in the nature of a collateral purpose in seeking that the meetings be called. Section 249Q of the Law was introduced by the Company Law Review Act 1998. Why it was introduced is uncertain as it is accepted that it brought about no change in the existing common law. Thus provided that the resolution sought to be passed is within the power of the members to consider and pass, and provided the meeting is called for that purpose and not for some extraneous purpose so as to constitute it an abuse, there is no restriction on the power to requisition. See for example, Humes Limited v APA Limited [1987] VR 467; Howard v Mechler (1990) 30 ACSR 474; Australian Innovations Limited v Petrovsky (Whitlam J, FCA unreported 31/5/96); Ford: Principles of Company Law 9th Edition, 7.123. The common law position was explained in NRMA Insurance Limited v Parker (1986) 6 NSWLR 517. Members cannot, by resolution, take upon themselves decisions on management matters, exclusively vested in the directors, as that would be beyond power and a meeting called for such purpose would not be for a proper purpose. On the other hand, where the constitution of a company provides that "subject to the law and other provisions of the constitution" the management control of its business and affairs shall be vested in the directors as is the case with Rule 52 of the Constitution of NRMA relevant to this case, the constitution can be amended so that the particular subject matters of management are to be dealt with as the constitution provides.

The costs resolution 11 On this resolution the arguments of counsel for NRMA are set out below and dealt with in turn. 12 A. That the resolution, if passed, would be beyond power and an attempt to usurp management and control powers vested in the directors. 13 Discussion. While this would be a strange provision in a constitution involving a direction for a one off payment of a specific amount to a specified person, I do not consider that the resolution is beyond the power of members to pass. Its effect is to limit the power of management, otherwise vested in the directors, and to require them to make a particular payment. It would be an unusual, and in some ways perhaps an undesirable, provision in a constitution and some may regard it as an undesirable exercise of power by the members if passed, but I do not consider it to be invalid. It would not be in conflict with rule 52. 14 B. Payment to Mr Talbot would involve a gift of assets of NRMA without the consent of all shareholders. It would be disposition of assets without consideration or without countervailing benefit to members and thus oppressive to those members who voted against it if it were passed. 15 Discussion. First it is accepted that this is not a payment to a related party and that those provisions of the law relevant to such payments do not apply. Second, NRMA is a company limited by guarantee, not a company with a share capital and to some extent that bears upon any question of dissipation of assets so far as any argument of counsel related to reduction of share capital which was only voiced I think as an afterthought without conviction. Nevertheless the position remains that funds of a company can only be used for company purposes, and thus the real argument was directed to the claim that the payment would involve gifts by NRMA to Mr Talbot and to NRMA Insurance or the disposition of assets without countervailing benefit. The answer to this I think is that members might well think, as Mr Snodgrass does, that Mr Talbot provided a valuable service in putting forward arguments opposing the schemes of arrangement which were important for its proper consideration and he should not remain out of pocket or liable for some payment for this; and they might well think, or some might think, it is time this argument and the attendant publicity were brought to an end and that this justified expenditure of funds. They might also think that as Mr Talbot is entitled under the court order to costs as agreed or assessed, the difference between that amount and that claimed would be relatively insignificant; and they might also think, as I do and have indicated, that the argument that as some of the costs are the concern of NRMA Insurance and not NRMA and that no gift should be made to the former company, to be almost unworthy of consideration. To explain this last statement, counsel for NRMA argued that the bill for costs as presented was a composite bill for the two actions, while the costs were payable by separate entities for separate actions. That is of course correct, but on the other hand as the proceedings were heard together it would be almost impossible to do more than attribute the work and costs equally between the two actions. Counsel appeared to concede this. It is just not sensible to think that the two companies could not make some arrangement so that NRMA Insurance accepted liability to NRMA for some reasonable part of the bill, but that does not mean that it is in some way beyond power of NRMA to make the payment on the basis it was in some way oppressive to some minority who might oppose the payment if the resolution were pressed. In such circumstances the rights of members in a company limited by guarantee, together with the amount of money involved make it difficult to see why the company itself could decide that the resolution was oppressive on its face without evidence it was. Oppression does not seem to me to have anything to do with it provided the purpose is proper. 16 C. Mr Shand's account contains an error. 17 Discussion. I think it likely this is the position. If it is then there is no reason to think an agreement between Mr Shand and his instructing solicitors would not be forthcoming, in which case there would be no reason why a reduced amended figure could not be put to the proposed meeting by way of valid amendment. 18 D. The resolution is otiose because Mr Talbot is entitled to his costs in any event. 19 Discussion. This argument has no substance. There are some problems with the order of Santow J because it refers to "reasonable solicitor/client costs" and there is no such basis for taxation or assessment now in this State where costs are assessed either under the Legal Profession Act 1987 or on an indemnity basis. Mr Talbot is not challenging the bill; a third party, liable to pay it or part of it, is seeking assessment of it. In any event the resolution if passed would required immediate payment, not payment at some future date after assessment, and possibly after the requirement to expend large sums of money on preparation of separate bills and subsequent assessment. 20 It follows that subject to some general matters I will refer to under the heading "Oppression" in dealing with the disclosure resolution the claim of NRMA on the costs resolution fails. Resolution as to directors disclosure 21 Here again I will set out the arguments of counsel and discuss them. 22 A. That the directors have a special contract with the company which the resolution would breach. 23 Discussion. This argument was founded on the principles established by cases such as Bailey v NSW Medical Defence Union Limited (1995) 184 CLR 399 and Swabey v Port Darwin Gold Mining Co (1889) 1 Meg 385. As I understood it the contention was that the directors, having been elected upon the terms of the constitution as it existed in 1999, were entitled to continue in office upon those terms unaltered. The difficulty with that argument is that there does not appear to be any basis for such contract, or for the imposition of some implied term that the constitution of the company would not be changed. The argument of counsel was that the resolution, if passed, would be retrospective and would be an unauthorised interference with substantive rights. This is, I think, a misconception about retrospectivity. If the resolution were passed, there would be a change operating in future, placing a new obligation on directors who wish to retain their qualification to act as director. That is not something which would operate retrospectively so as to take away some prior right, but a rule imposing an obligation if directorship is to be retained in the future. One could not possibly say that the intention of the proposal would be improper, nor I think that there was not some reasonable basis for it. Even if the passing of the resolution could amount to a breach of a separate contract - and as I have said I do not think it could - that in itself would not necessarily be a basis for restraining its submission. If it were passed and that involved some breach of contract a director affected could sue for damages for breach although it is difficult to see what damage anyone could suffer from disclosing what is sought. In Swabey v Port Darwin Gold Mining Company relied upon by counsel is of no assistance to NRMA. There the company, by special resolution, altered an article so that the directors' fees provided for by the article prior to alteration were reduced. The company then attempted to have that alteration operate retrospectively. It was held that as directors held office in accordance with the articles but subject to the provision that the articles could be altered as to directors' fees or otherwise, then the particular article could be altered for the future but not for the past. To some extent this law as to the difference between rights of members as members pursuant to the constitution, private contracts entered into between directors and the company is less important since the enactment of s140 of the Corporations Law which was not referred to by counsel. Section 140(1)(b) now provides that the constitution takes effect as a contract between the company and each member and the company and each director under which each person agrees to observe and perform the constitution, which of course here includes the power of amendment assuming for this purpose that "observe" incorporates "accept". 24 B. That the resolution would be oppressive, both to directors as members and to members who had voted for the directors elected in 1999 and who opposed the resolution. I point out that counsel did not attack the resolution so far as it would operate in respect of future elections but he did argue the resolution as framed would not be capable of amendment at a meeting called to consider it so as to provide it operated solely for future elections. 25 Discussion. The reason the resolution was claimed to be oppressive, was that it would be retrospective. I have already discussed this. Even if that were correct, and if members in their capacity as directors felt oppressed, the remedy is to take action under s232 of the Law. Members are those with standing to do so, not the company but as s232 was not mentioned I take it the argument was not about statutory oppression. There is no evidence from any director that the passing of the resolution would oppress that director member which might give some justification for the company forming a view that the proposed resolution (s232(c)) would be oppressive or prejudicial to such director (s232(e)). 26 Associated with this argument was what I think the main submission of the plaintiff on this proposed resolution. The claim was that the time for election of directors in 1999 candidates had either

that the terms on which they were elected as directors would not be varied during the course of their term as directors. In other words those directors had a right to serve under the constitution as it stood at the time of their election so that any action for removal of them as directors was limited to grounds existing at the date of election. It is thus said that the resolution put forward was not for a proper purpose as it was oppressive to those directors and to the members who voted for them. 27 I do not think that there is any basis to argue that there is any such vested right or legitimate expectation nor is there any evidence to support such a claim which I consider would be required at least to establish the legitimate expectation. A director elected in 1999 was elected on the terms of the constitution and the Corporations Law which included an entitlement in the company to alter the constitution. There was no right to require, or legitimate expectation to think, that the power to do so would not be exercised. It would, I think, be possible in the case of a company limited by shares to introduce a shareholding qualification for directors to operate in the future. That would not be retrospective or in breach of contract, neither would it of itself by oppressive just because it applied to all directors at the time of passing of the amending resolution. The only difference between that resolution and the proposed resolution is that the proposed resolution requires disclosure of past support as a condition of future entitlement to hold office. When taken with the power of amendment that is not retrospective and does not interfere with the existing rights which are rights to hold office in accordance with the constitution as amended from time to time. 28 The second argument based on oppression was that the members who had voted for the election of the present directors, and who voted against the resolution would be oppressed. First there is no reason to come to any such conclusion as there is no reason to think directors would not make the required disclosure and if they did that could not disadvantage their supporter members. However for this part of the argument counsel relied on the decision in Gambotto v WCP Limited (1995) 182 CLR 432. That case determined the law so far as expropriation of shares or alteration of rights attached to shares of non-consenting shareholders was concerned. The ratio of the decision was restricted to that issue. It had nothing to do with some perceived entitlement to retain a directorship or perceived right of some member to have a director for whom that member voted, remain in office, in spite of the provisions of a change of constitution agreed to by the required majority of members. No member has any property right in a director; no director has any right to remain a director if members decide to impose a qualification for the future. Nevertheless there is a passage in Gambotto at page 444 which it is necessary to consider, although not specifically relied upon by NRMA. There after discussion of the judgments in Allen v Gold Reefs of West Africa Limited [1900] 1 Ch 656 and Peter's American Delicacy Co Ltd v Heath (1939) 61 CLR 457, the following passage appears: The test for determining whether an expropriation is valid

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 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 articles or oppressive as that expression is understood in the law relating to corporations. Somewhat different considerations apply, however, in a case such as the present where what is involved is an alteration of the articles to allow an expropriation by the majority of the shares, or of valuable proprietary rights attaching to the shares, of a minority. In such a case, the immediate purpose of the resolution is to confer upon the majority shareholder or shareholders power to acquire compulsorily the property of the minority shareholder or shareholders. Of itself, the conferral of such a power does not lie within the "contemplated objects of the power" to amend the articles. 29 To apply that passage insofar as it deals with alteration of articles not involving expropriation of shares or rights attaching to shares to the present case it could not be said that the proposed resolution is ultra vires meaning that it is not beyond any purpose contemplated by the articles and it could not be said that it was not for the purposes of NRMA. The question then is whether or not it is oppressive as understood in corporations law, where at least in the past the expression was used as connoting conduct which would be a fraud on the minority and thereby oppressive to the minority or at the very least unfair to the minority. For the purposes of this decision I proceed on the bases that if oppression is obvious there is no need to lead evidence of it from members; and second that in those circumstances it is proper for the company itself to take proceedings such as the present so as to avoid any obligation of putting a resolution which would result in oppression to members who opposed it at a general meeting. I do not consider there is any basis upon which the proposed amendment could be found to be oppressive. It would be one which it was perfectly reasonable for members to consider and would be proper for the good operation and governance of the company. Insofar as the argument based on Gambotto was directed to the costs resolution I would come to the same conclusion. 30 C. That the resolution is uncertain and thus should not go forward. 31 Discussion. The argument is that the requirements of the resolution are uncertain so that a director could be uncertain whether or not he or she had fulfilled the obligation imposed by the rule. No doubt the resolution might have been more clearly expressed but it is not so expressed as to make it difficult to understand its import and requirements. Conclusion 32 For the reasons set out the plaintiff's claim must fail as it has not been established that a general meeting called to consider the proposed resolution would not be called for a proper purpose. As is well known there has been considerable discussion about whether the provisions of the law under which members can requisition general meetings are suitable for a company such as NRMA, which has well over a million members. That is something under consideration by those concerned with the operation of the Corporations Law but this action must be dealt with under the law as it stands. The cost of calling a general meeting of an organisation such as NRMA pursuant to a valid requisition is at the present time a cross the members must bear while the existing law is in place. The burden of the cross will disappear if and when the dissension within the company ends. One can always bear in mind that if the directors elected in 1999 disclosed the information sought in the second resolution, and the directors agreed to put an amendment in the general terms sought but so as to operate for the next election and thereafter at a meeting to be held on the same day as the next annual general meeting the defendant might agree to withdraw the requisition. In the same way some sensible discussion about costs as was suggested by Bryson J and by me might obviate the reason and in the requisitionist's view the necessity to put forward the costs resolution. That is not necessarily to suggest that the directors should take any such action as they may well have good reasons for opposing the resolutions and for recommending to members that they should vote against the resolutions. In any event these are matters for the parties and quite outside the facts upon which this decision is based. Orders 33 That the defendant be appointed to represent all persons who have signed the requisitions the subject of these proceedings. 34 The summons be dismissed with costs. 35 The exhibits may be returned. **********

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