NRMA v Snodgrass; NRMA v Dupree

• 11 - IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

3237/02 NATIONAL ROADS AND MOTORISTS' ASSOCIATION LIMITED V WILLIAM SNODGRASS & ANOR

3345/02 NATIONAL ROADS AND MOTORISTS' ASSOCIATION LIMITED V JAMES DUPREE

JUDGMENT 1 NRMA seeks an order under s1322(4)(d) of the Corporations Act extending the time within which it is required to call a general meeting of members and the time within which that meeting is to be held for the purpose of considering resolutions for the removal of directors. The first requisition, requesting the calling of a meeting was given to NRMA on 20 June 2002. The purpose of the meeting requested is to consider resolutions for the removal of eight named directors, those directors being Mrs Callaghan, Mr Coyne, Ms Carnell, Mr Paciullo, Mr Sanchez, Ms Spicer, Mr Toovey and Mr Whitlam. An order has been made that Mr Snodgrass be appointed to represent the requisitionists who have made the request under s249D(1) for the calling of this meeting. For convenience I will call these proceedings "the Snodgrass proceedings" and these requisitionists, "the Snodgrass requisitionists". The second requisition is the subject of proceedings No. 3345 of 2002. This seeks a meeting for the purpose of considering resolutions for the removal of the remaining six directors of NRMA, namely Mr Geeson, Ms Keating, Dr Lennane, Ms Singleton, Mr Sutherland and Mr Talbot. The notice includes the following statement: We make this request because we believe these directors to be disruptive influences on the NRMA Board and not to be acting in the best interests of the members. 2 Mr Dupree has been appointed to represent these requisitionists, so that I will refer to these proceedings as "the Dupree proceedings" and these requisitionists as "the Dupree requisitionists". NRMA seeks orders under s1322(4)(d) which will have the effect of ensuring that both meetings are held at the same time. The Dupree requisitionists consent to that order. Legislation - Corporations Act (the Act) 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 3 Section 1322(4)(d) of the Act provides that the court may make an order extending the period for doing any act. Section 1322(6)(c) provides that the court must not make an order in the circumstances which arise here unless it is satisfied that no substantial injustice has been or is likely to be caused to any person. Relief claimed 4 When the Snodgrass proceedings were commenced the only relief sought apart from a representative order was a declaration that the request to hold the meeting had not been validly served and for an injunction restraining its service. On 20 June I granted an ex parte injunction restraining Mr Snodgrass from presenting the requisition making it clear that this would not bind any of the other requisitionists. The matter was, on that day, stood over to 25 June. On that date an amended summons was filed. By that time it was accepted that the requisition had been given to the company as required by s249D(2). The relief sought was first for declarations, expressed in various ways, that the requisition was void or that the meeting required would not be held for a proper purpose. The alternative relief sought was for an order extending the time fixed for the calling of the meeting and the time fixed for the holding of the meeting and that the calling of the meeting be extended until the time of calling the annual general meeting of members for the year 2002 and the time for holding the meeting be extended up until the time of holding of the annual general meeting. Early in the proceedings on 25 June, Mr McDougall QC, senior counsel for NRMA indicated that he wished only to proceed on the applications for extensions of time and did not maintain that the requisitions were invalid because the meetings would not be held for a proper purpose. The claims for that relief were therefore dismissed by consent on 27 June and the application under s1322(4)(d) proceeded on that day. NRMA grounds for extension 5 The arguments of NRMA in support of an extension are to some extent predicated upon the fact that the company will hold its annual general meeting some time in November 2002. On the evidence presented I think it likely that it would be in the second half of November. The reasons why an extension is sought are first, cost, second the impossibility of complying with the statutory times, and third, the fact that as the meeting date at the earliest will be some time in September a delay of a further two months to coincide with the annual general meeting would be sensible as it would not cause prejudice or injustice to the requisitionists and would save considerable expense. 6 Ms Kelly, the group secretary and general counsel of NRMA, in affidavit evidence set out the cost of calling a general meeting and a timetable showing the times necessary for the required steps to be undertaken to bring this about. Her estimate was that the cost of calling a meeting separate from the annual general meeting would be in the order of $2.6 million. If the meeting were held on the same date then her estimate was a cost of at least $1.4 million. There was no real challenge to these figures, but it is fair to say that they are predicated upon the printing costs being the same as the printing costs for the annual general meeting, which may not necessarily be the same and they include $124,000 for consultants' fees and $145,000 for advertising and $50,000 for customer research. They also include $425,000 for legal fees. I do not consider that all these fees will necessarily be incurred in holding the requisitioned meeting, but they can at least be taken as a guide and were, I think, put forward only as a guide. 7 In her affidavit, Ms Kelly gives details of the work which is required to be done to call a meeting of members and the timetable for this work. She says that it would be impossible to call the meeting within twenty-one days. That is because it takes a minimum of two weeks to close the register of members and determine the members entitled to notice of the meeting and because the following additional tasks must be performed, (a) the board must determine the venue and the time and date for the meeting; (b) a venue will have to be obtained; (c) the notice of meeting will have to be prepared which will involve consultation with lawyers and this notice of meeting will have to be approved by the directors (d) the notices of meeting will have to be distributed which involves printing, packaging by a mailing house and posting to members. The number of members who will be entitled to notice will be somewhere between 1.8 million and 2 million people. In addition to this it can be assumed that the requisitionists will request that a statement from them be distributed to members in accordance with s249P of the Act and each director affected by the resolution proposed may require his or her case to members be circulated in accordance with s203D(4) of the Act. The board will have to prepare and approve the form of the materials to be sent. There are other matters referred to which are procedural and which I do not think need to be taken into account. 8 The members are entitled to twenty-one days notice of the meeting. It is perfectly clear, I think, that the required notice of meeting could not be forwarded within the twenty-one days. This is no ordinary company. On the other hand a company receiving a requisition is required to respond to it as quickly as possible. Bearing in mind that in this case there is likely to be considerable difficulty in settling the requisitionists' statements unless co-operation and sense prevails, which cannot be assumed, I conclude on the evidence that a time of two months is necessary for the sending out of the notice of the meeting with the appropriate materials. That would mean that the meeting could be convened to take place at the end of September or early October. This as the company says would mean that any such meeting would be held within two months of the likely date of the annual general meeting. Therefore it says that bearing in mind the cost and the work involved and difficulties involved in calling such meeting on a separate occasion that the order sought should be made. Reasons for the Snodgrass requisitions 9 It is apparent that the NRMA board is split into two factions. The Snodgrass requisitionists support the directors whom the Dupree requisitionists are wishing to remove. They say that the other directors are not acting in the best interests of members. The particular matter which has brought about the requisition is a proposed increase in members' fees and a proposed reduction in services. A press release issued after a board meeting on 30 May 2002 gave details of increased fees and some reduction in the number of services available for what might be described as the basic fee. The requisitionists say that in the information booklet issued to members during the demutualisation process, it was said in numerous places that if demutualisation occurred services would remain at their existing level and that fees would not increase until 30 June 2001 and after that it was expected that any increases would be in line with the Consumer Price Index. 10 Ms Kelly's evidence was that the proposed increases were put forward by management. In fact her evidence at the commencement was that they were fees decided by management but subsequently she stated that they were fees approved by the directors. It is clear that is the correct position. On 27 June 2002 Mr McDougall QC gave an undertaking in the following form, "NRMA undertakes that it does not presently propose to implement the new membership fee structure until January 2003 with the result that no renewal notice under that structure will be issued to members before December 2002." It was obvious enough that undertaking had difficulties and was probably worthless because, as Ms Kelly agreed in evidence on 29 June, the company could change its mind and in any event her evidence was that it had been the intention to proceed with the increase in fees as soon as possible once the necessary computer systems could be put in place to effect the increase. The view of NRMA appears to have been that it was losing considerable sums of money every month and that an increase was required. No doubt as a result of this senior counsel for the plaintiff on 28 June gave a new undertaking in the following terms, "The plaintiff undertakes to the court that prior to 1 December 2002 it will not send to a member a renewal notice requiring a payment of a membership fee based on the proposed new membership fee structure." It is, I think, perfectly clear that the undertaking was given to provide further justification for the extension of time for the holding of the meeting and to show there would be no injustice to any person caused by an extension.

It seems apparent that the procedures and delegations of authority in NRMA must have allowed this undertaking to be given without the approval of the directors as the times involved would have made it impossible to obtain approval. That does not really bear on the matter, but the undertaking seems strange in view of what was perceived to be the requirement for the increase of fees to make up for continuing monthly trading losses. 11 It is proper to say that the Snodgrass requisitionists in the various statements admitted into evidence in their case expressed certain other concerns about the conduct of the directors whom they wish to remove and about certain financial matters and the availability of information. They complain of the conduct at the last annual general meeting, of its length, of the part Mr Paciullo took in it and his subsequent appointment to fill a casual vacancy having stood unsuccessfully in 2001. There are also concerns expressed about losses being experienced and the fact that half yearly figures are not being published, although there is no statutory requirement for this. Dr Lennane, who is a director of NRMA but not a requisitionist, did give evidence in support of the Snodgrass requisitionists. I should make it clear that in coming to the conclusion I have reached place no reliance whatsoever on her evidence which was apparently given to ventilate a complaint that she had not been able to have confidential financial information disclosed to a person she would wish to have assist her in understanding the financial affairs of the NRMA. She also complained as did some of the other witnesses for the Snodgrass requisitionists about the failure of NRMA to publish half yearly accounts and the fact she, as a director, did not have such accounts. This last statement was not true 12 The Snodgrass requisitionists argue (a) that they are entitled to have a meeting called; (b) that the question of fees and services are at the heart of the organisation; (c) that members voting on the demutualisation question, whether opposing it or supporting it, were entitled to rely upon statements as to continued service and as to the likely extent of fee increases; (d) that disharmony on the board has increased since the last election of directors and that these matters should be settled now and not at an annual general meeting having regard to the problems at the last annual general meeting. General comment 13 It seems to me extraordinary that in a company limited by guarantee with about 2 million members a general meeting can be summoned by requisition of 100 members, namely one in every 20,000 or .005 percent. There is provision under s249D(1A) for prescription by regulation of a different number of members for the purposes of the application of paragraph 249D(1)(b) to a particular company. The evidence shows that a regulation proposed for a general class of companies was disallowed in the Senate some years ago. Despite that it seems to me that the time has well and truly arrived for a regulation to be made under this section in respect of NRMA. Nevertheless until it is the rights of members must be decided on the basis of their present rights. In other words the number of requisitionists - which I accept is well over 100 - is not a matter to be taken into account when considering this application of the plaintiff under s1322(4)(d). Discussion 14 Under the constitution of NRMA and the provisions for appointment of directors, the year 2002 is not an election year. In other words the existing directors will remain in office after the annual general meeting. What the plaintiff seeks is an extension of time to hold the meetings requisitioned so that they will be either put as part of the business of the annual general meeting or at a meeting convened to take place immediately before the annual general meeting, or I think as a last resort on the day prior to the date fixed for the annual general meeting. The only advantage of this last suggestion is the advantage of hiring the same venue for two consecutive days. 15 I do not consider blanket type factional removal resolutions are suitable for debate at an annual general meeting of this company in a non-election year. It is essential that the financial and other statutory business of this meeting be given proper attention which is unlikely to happen in the heated atmosphere which is almost certain to be generated by these proposed resolutions. Nor do I consider it a good idea to consider them in a separate meeting on the same date but prior to the annual general meeting. One can take judicial notice of the fact that on past experience that would make it very difficult to determine a certain time for the commencement of the annual general meeting and members attending both could well be worn out well before the annual general meeting came to an end. A meeting summoned for the day prior to the annual general meeting has some attraction but on balance not sufficient to justify such an order. The reasons for this are that the result of the meeting could throw the annual general meeting into disarray. It is possible that six directors only would remain. On what seems to be the present balance of power it might be difficult for them to conduct the annual general meeting. It is also possible that as a result of the meeting the company would have no directors. It is not beyond the bounds of possibility that members may be so disillusioned and fed up with the ructions at directors' level in their company that they would vote in favour of both the Snodgrass and the Dupree resolutions thinking that administration in some form might be preferable to the existing position. This consideration would also apply if the resolutions became part of the business at an annual general meeting. Decision 16 In the light of the matters referred to I have come to the conclusion that an order as sought should not be made. Section 1322(4)(d) gives a discretion whether or not the requirements of s1322(6)(c) are fulfilled. In exercise of the discretion I would not make the order but in addition I do consider it could cause some injustice to the requisitionists if the order sought were made. The reasons set out under the Discussion heading cover both considerations. 17 The evidence establishes that a period of two months is necessary in which to call a meeting. In a perfect world from the point of view of the company a longer time might be desirable but it has not been established it is necessary. An additional month should be added to this as the time within which a meeting must be held. I propose to add a further period of one week to both dates for complete safety. That will require a meeting to be summoned by 10 September and held by 17 October. This is the order I will make. Orders 18 In each matter:

1. Order that the time to call the meeting requested by the requisitionists represented by the defendant be extended up to and including 10 September 2002.

2. Order that the time by which such meeting must be held be extended up to and including 17 October 2002.

Last Modified: 07/05/2002 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.