Reefton Mining NL v Kimbriki Nominees Pty Ltd

background circumstances 5 Reefton is a publicly listed no liability company. It is required to have at least three directors, two of whom must ordinarily reside in Australia: s 201A(2) of the Corporations Act 2001 (Cth) (Corporations Act) and cl 13.1 of Reefton's Constitution. Prior to 29 November 2006, Reefton had three directors, namely, Messrs Moore (Chairman and non-executive director), Katchan (technical director) and Thompson (non-executive director). Messrs Moore and Katchan were ordinarily resident in Australia while Mr Thompson was ordinarily resident in the United Kingdom. 6 On 29 November 2006 Reefton held its annual general meeting. Messrs Moore and Katchan were required to stand for re-election as directors. Mr Thompson was not required to stand for re-election. Mr Katchan was re-elected but Mr Moore was not re-elected. As a result Reefton has only two directors being less than the minimum number required by the Corporations Act and Reefton's Constitution. 7 On 8 December 2006 the secretary of Reefton sent a letter to each shareholder entitled 'Report to shareholders and invitation for nominations to board'. In the first four paragraphs the letter outlined the above position in relation to directors. It then advised that the continuing directors, Messrs Thompson and Katchan, proposed to deal with the situation by holding a general meeting of shareholders to elect new directors, as soon as possible. It was stated that the expectation was that the meeting would be held in late January 2007. 8 Further it was stated that two nominations for election to the board had already been received, namely, Messrs Elliott and Tavani. It was then stated: 'The Company now invites other nominations for election to the Board. Anyone properly nominated will be added to the list of candidates for election at the general meeting.' 9 The next paragraph explained that the candidates were not required to be shareholders. Nominations were required in writing, signed by the nominated candidate who could nominate themselves or be nominated by another shareholder. Candidates were invited to provide a statement of not more than 200 words on their qualifications and possible contribution to the company and these statements were to be circulated to shareholders with the notice of meeting. 10 It was said that the continuing directors wished to finalise the list of candidates for inclusion of notice of meeting by 20 December 2006 so that nominations should be lodged with the company by that date. The letter set out the method for delivery of nominations. 11 It further stated that Mr Thompson had advised that he would retire at the general meeting and stand for re-election along with candidates nominated by the nomination process set out in the letter. Further it was stated that Mr Katchan's present intention was to continue in office given that he had been re-elected at the annual general meeting on 29 November 2006. The final paragraph in the letter read: 'The Constitution provides that the Company may have a maximum of 9 directors. The number of directors to be elected at the general meeting will depend on the number of nominations received. The first item of business at the meeting will be a resolution to determine the number of places to be filled on the Board. Given the size and financial position of the Company, the continuing directors propose to recommend that the number of directors on the Board should be 5, or such lesser number as shareholders may see fit to nominate and elect.' 12 On 20 December 2006 the defendants gave notice that a general meeting of shareholders of Reefton would be held on 22 January 2007 for the purpose of transacting the business referred to in the notice. That business was threefold: (1) the appointment of directors; (2) the removal of Mr Thompson as a director; and (3) the change of the company name by a special resolution. The agenda set out that an ordinary resolution for the appointment of Messrs Gardner, Elliott, Birrell and Green would be put to the meeting. 13 The defendants are shareholders in Reefton who together hold more than 5 per cent of the votes which may be cast at a general meeting of the company. None of them are nominees for election as directors. 14 The four proposed appointees as directors listed in the agenda for the shareholders proposed general meeting are persons who have also nominated for election at the Reefton general meeting. 15 On 22 December 2006 Reefton was provided with a copy of the shareholders notice of meeting. Prior to receiving that notice, Reefton's continuing directors were not aware that the defendants proposed calling a general meeting. 16 On 4 January 2007 the secretary of Reefton wrote to shareholders referring to the prior letter of 8 December 2006, advising that seven new nominations had been received for election to the board in addition to Mr Thompson and that, because of the Christmas holiday period and having the notice printed to give adequate notice to shareholders, a meeting date in early February 2007 was now proposed. 17 The letter also referred to the receipt by Reefton of the shareholders' notice of general meeting and advised that shareholders should note that the five members who called the meeting did so on their own initiative and without any involvement of the company or the existing directors. 18 Finally the letter advised that the continuing directors had concluded that the proper course was to proceed with the original intention to call a meeting, putting forward all eight candidates for election and to apply to the Court for an order that the meeting called by the five shareholders for 22 January 2007 be cancelled. It expressed the view that the directors considered the holding of the meeting proposed for 22 January 2007 would be contrary to the interest of members as a whole because it would exclude a number of properly endorsed candidates from standing for election to the board. 19 In an attached notice of general meeting for 12 February 2007, the special business was listed as (1) the passage of an ordinary resolution to set the number of directors of the company at five pursuant to cl 13.1 of Reefton's Constitution; (2) the re-election of Mr Thompson; and (3) the consideration of the election of the remaining seven candidates, including the four candidates referred to in the shareholders' notice of meeting. 20 In relation to the first resolution, an explanatory statement to the letter stated that if the resolution was not passed limiting the number of directions to five, the directors proposed to allow all resolutions to go forward to the meeting in the order in which they appeared in the notice with the result that up to eight candidates may be elected and the company may have a board with up to nine members. Statements supplied by each of the candidates for election were also attached to the notice of meeting.

Relevant legislative provisions 21 When the defendants convened the general meeting they did so in purported reliance upon s 249F of the Corporations Act which reads: '249F (1) Members with at least 5% of the votes that may be cast at a general meeting of the company may call, and arrange to hold, a general meeting. The members calling the meeting must pay the expenses of calling and holding the meeting. (2) The meeting must be called in the same way - so far as is possible - in which general meetings of the company may be called. (3) The percentage of votes that members have is to be worked out as at the midnight before the meeting called.' 22 In relation to meetings of company's members, the Corporations Act provides as follows in s 249Q: '249Q A meeting of a company's members must be held for a proper purpose.'

Constitution of reefton 23 The Constitution of Reefton provides (inter alia) in respect of general meetings as follows: '11.2 Notice A notice of a general meeting shall be given in accordance with the requirements of the Corporations Act, clause 26 and the Listing Rules, and: (a) must specify the place, the day and the time of the meeting; (b) must state the general nature of the business to be transacted at the meeting; (c) must specify a place and fax number for the purposes of receipt of proxy appointments; and (d) may specify an electronic address for the purpose of receipt of proxy appointments, and shall include any other information required to be included in the notice by the Listing Rules. The non-receipt of a notice of general meeting by a Shareholder or the accidental omission to give this notice to a Shareholder shall not invalidate any resolution passed at the meeting.' 24 In respect of directors, it relevantly provides as follows: '13.1 Number of Directors The Company shall at all times have at least 3 Directors. The number of Directors shall not exceed 9. The Company may, by ordinary resolution, increase or reduce the number of Directors and may also determine in what rotation the increased or reduced number is to go out of office. 13.2 Rotation of Directors Subject to clause 17A, at the Company's first annual general meeting after incorporation, all the Directors shall retire from office, and at the annual general meeting in every subsequent year, one-third of the Directors for the time being, or, if their number is not a multiple of 3, then the number nearest one-third (rounded upwards in case of doubt), shall retire from office, provided always that no Director except a Managing Director shall hold office for a period in excess of 3 years, or until the third annual general meeting following his or her appointment, whichever is the longer, without submitting himself for re-election. The Directors to retire at an annual general meeting other than the first annual general meeting are those who have been longest in office since their last election, but, as between persons who became Directors on the same day, those to retire shall (unless they otherwise agree among themselves) be determined by drawing lots. A retiring Director is eligible for re-election. An election of Directors shall take place each year. 13.3 Election of Directors No person other than a Director seeking re-election shall be eligible for election to the office of Director at any general meeting unless the person or some Shareholder intending to propose his or her nomination has, at least 15 Business Days before the meeting, left at the Registered Office a notice in writing duly signed by the nominee giving his or her consent to the nomination and signifying his or her candidature for the office or the intention of the Shareholder to propose the person. Notice of every candidature for election as a Director shall be given to each Shareholder with or as part of the notice of the meeting at which the election is to take place. The Company shall observe the requirements of Section 225 of the Corporations Act with respect to the election of Directors. If the number of nominations exceeds the vacancies available having regard to clause 13.1, the order in which the candidates shall be put up for election shall be determined by the drawing of lots supervised by the Directors and once sufficient candidates have been elected to fill up the vacancies available, the remaining candidates shall be deemed defeated without the need for votes to be taken on their election.'

Whether serious issue to be tried 25 Reefton brings the application for injunctive relief on three bases, to each of which I turn.

Alleged contravention of s 249F(2) of the Corporations Act 26 In reliance on s 249F(2), Reefton submits that it was incumbent upon the shareholders when issuing their notice of general meeting to comply with cl 13.3 of Reefton's Constitution and so to provide notice of all persons who had been nominated to be elected as directors. This submission is founded on the sentence in cl 13.3 reading: 'Notice of every candidature for election as a Director shall be given to each Shareholder with or as part of the notice of the meeting at which the election is to take place.' Reefton says that a company's constitution should be construed as a whole so as to give it reasonable business efficacy, at least where a construction of that type is available: Lion Nathan Australia Pty Ltd v Coopers Brewery Ltd [2006] FCAFC 144 at [13] (adopted at [45], [97], [232]). It is said that having regard to the principle that a corporate constitution should be construed so as to give it reasonable business efficacy, it follows that cl 13.3 of Reefton's Constitution should be construed as requiring Reefton to give notice of every candidature for election to each shareholder. Consequently by application of s 249F(2) the shareholders should 'so far as is possible' have called their general meeting in the same way. The reference to 'so far as is possible' is relied upon as indicating that, if knowledge of the nominations to Reefton was not with the shareholders, they would not be required to include reference to it. 27 I agree that the relevant sentence of cl 13.3 in Reefton's Constitution should be construed as requiring Reefton to give notice in the manner alleged in relation to every candidature for election as a director. However, I do not agree that sentence can transmit, even with the aid of s 249F(2), the same obligation in respect to shareholders convening a general meeting pursuant to s 249F(1). That is because the sentence relates to notice being given of candidatures of persons for election as a director in respect of the meeting 'at which the election is to take place'. The persons responding to the letter of Reefton of 8 December 2006 were persons seeking election at the general meeting to be convened by Reefton, then thought to be likely for late January 2007 but subsequently called for 12 February 2007. In its terms, cl 13.3 through that sentence does not impose an obligation in respect of a meeting other than 'at which the election is to take place'. 28 It may be that s 249F(2) is to be understood as referring to the procedural matters such as those set out in cl 11.2 of Reefton's Constitution. However it was not necessary for that point to be argued and I cast no present opinion on it. 29 In my view there is no strength in the first limb of the argument relied upon by Reefton.

Alleged improper engagement in conduct breaching cl 13 of Reefton Constitution 30 Reefton contends that as cl 13.1 of its Constitution requires a minimum of three directors and permits this number to be increased up to nine directors by ordinary resolution. If more than nine directors are necessary the Constitution needs to be amended by special rather than ordinary resolution: s 136(2) of the Corporations Act. Further, Reefton says that, there not being any ordinary resolution prescribing more than three directors, that is the maximum number of directors allowed. It is submitted that the power of Reefton's shareholders to increase the number of directors up to nine by ordinary resolution has never been exercised. Therefore it is said that not all of the resolutions proposed by the defendants at their meeting can be passed because, in addition to Mr Katchan, they seek to appoint four directors and remove one director. To do this Reefton submits it is necessary for there to be a resolution pursuant to cl 13.1 to at least increase the number of directors to four, if not five and no such resolution has been proposed by the shareholders in their notice. 31 Further, reference is made to the provision in the final sentence of cl 13.3 of Reefton's Constitution for the order of election to be determined by a lot. Reefton submits that the defendants' notice does not indicate any intention to comply with that requirement. 32 Therefore, it is contended that the purpose of the defendants' meeting to elect four directors is not a purpose which can be validly achieved in a manner consistent with Reefton's Constitution. Consequently, it is not a proper purpose for s 249Q of the Corporations Act: cf NRMA v Parker (1986) 6 NSWLR 517 at 522 (Parker 6 NSWLR). 33 I agree with the submission for the defendants that, in the absence of any evidence of a resolution prescribing the maximum number of allowed directors being three, it does not follow that the number is three directors. As has earlier been set out, Reefton's letter of 8 December 2006 expressly acknowledged the position that in the absence of a resolution to prescribe the number of directors at five, Reefton could have any number between three and nine. In my view that is the correct position and there is no substance in this allegation. 34 If there is an obligation on the shareholders general meeting to comply with the requirement for a ballot in an order determined by a lot in accordance with cl 13.3 of Reefton's Constitution as would appear to be the case, that is a matter which is applicable to the conduct of the meeting. It has been accepted by the defendants that the chairman of directors of Reefton would be entitled to seek to chair the general meeting which they have convened. It would therefore be in his hands to ensure that the requirement for lots was observed.

Alleged engagement in conduct contravening s 249Q of the Corporations Act 35 Reefton refers to its letter of 8 December 2006 and its finalisation of the list of candidates on 20 December 2006 and to the fact that its intentions as set in that letter were announced to the share market. It says that nevertheless on 20 December 2006 the defendants signed the notice of meeting pursuant to s 249F of the Corporations Act. At that time, Reefton says there was no indication it was doing anything other than pursuing its stated intention to hold the general meeting to consider for election any person who had nominated in response to its invitation. There was no communication with it from the defendants prior to the defendants calling the meeting. Therefore, it is said, the only available inference is that the purpose of the defendants in calling their meeting is to have the directors proposed by them considered in advance of any other directors who have nominated. This, it says, is in order to give the defendants' proposed directors the advantage that they do not have to compete with other nominees and may avoid coming at the end of a list of nominees if, at the meeting on 12 February 2007, the number of directors is fixed at less than the number of nominees and there is a ballot pursuant to cl 13.3. Reefton says that in these circumstances the defendants' inferred purpose is not a proper purpose. Reefton says that the matters it seeks to put to a general meeting of shareholders are not improper: cf Parker 6 NSWLR at 522; NRMA v Snodgrass (2001) 37 ACSR 382 at 387. It is submitted that in the present case the defendants' purpose is not a proper one because it is not for Reefton's benefit to put it in a position to have a limited election of directors on 22 January 2007 when that is contrary to its expressed statements to shareholders in the market and where it was reasonably pursuing its stated intention to have a full election on 12 February 2007. 36 The defendants say that their purpose appears in the explanatory memorandum to their notice of meeting, which is that they propose four new directors, a new name for the company and, in general, a fresh approach. In any event, they say the intention of the shareholders in convening their meeting is not relevant because it does not matter that the requisitionist is motivated to pursue the purpose by ill-will or self-interest: NRMA v Scandrett (2002) 43 ACSR 401 at 411 approved in NRMA v Parkin (2004) 49 ACSR 386. In Humes Limited v Unity APA Ltd [1987] VR 467 at 471 (Humes VR 467)Beach Jaccepted that the requisitionist was entitled to act in furtherance of its own interests, provided however that its requisition for the meeting is bona fide, in that its objective is to have the resolutions passed and not simply to harass the company and its directors. None of these matters are in issue here. 37 Reefton also relies on Adams v Adhesives Pty Ltd (1932) 32 SR (NSW) 398 at 401-402 which was distinguished but adopted in principle in Humes VR 467 at 471-472: see also BWN Industries Pty Ltd v Downey (1993) 11 ACSR 777 at 783. It does so for the proposition that the persons calling the meeting should be regarded as quasi-officials of the company and subject to the same supervision as directors summonsing a meeting, so that they must act for the benefit of the company as a whole and not for some ulterior purpose. 38 In relation to the plaintiff's submission that the shareholders (by not stating the names of all the candidates advising Reefton of their wish to seek election at Reefton's general meeting) are not acting for the benefit of the company as a whole, Beach J in Humes VR 467 at 470-471 said: 'Voting powers conferred on shareholders and powers conferred on directors by the articles of association of companies must be used bona fide for the benefit of the company as a whole. In Greenhaigh v. Arderne Cinemas Ltd. [1951] Ch. 286, Evershed M.R., in a case relating to a special resolution altering the articles of association, said: 'In the first place, I think it is now plain that "bona fide for the benefit of the company as a whole" means not two things but one thing. It means that the shareholder must proceed upon what, in his honest opinion, is for the benefit of the company as a whole. The second thing is that the phrase, "the company as a whole," does not (at any rate in such a case as the present) mean the company as a commercial entity, distinct from the corporators it means the corporators as a general body. That is to say, the case may be taken of an individual hypothetical member and it may be asked whether what is proposed is, in the honest opinion of those who voted in its favour for that person's benefit' [1951] Ch., at p. 291' Here, the honesty of the opinion of the defendants is not in question. 39 Additionally, in considering whether the defendants have called their general meeting for an improper purpose, it is important to start from the understanding that they have exercised a statutory right in doing so, that is, the right provided in s 249F(1) of the Corporations Act. In Humes VR 467 at 472 Beach J said: 'In my opinion this Court should be very reluctant to interfere with a minority shareholder's statutory right to requisition a general meeting. I consider it should only do so when it is clear that the purpose for calling the meeting is something other than the passing of the resolutions contained in the requisition.' 40 Also to be taken into account concerning the bona fides of the defendants is that five of them are listed in the exhibited last annual report of the company as being among the 20 largest holders of quoted securities in Reefton, although all of them together do not greatly exceed the 5 per cent required to requisition the meeting. 41 It is also relevant that the defendants accept not only that the chair of Reefton may chair their general meeting, but also that, if their meeting proceeds and the new directors take office, they will have no power to cancel the general meeting convened by Reefton for 12 February 2007. That is, the defendants accept that even if their meeting is held, the elections scheduled at the Reefton general meeting will also have to take place, although without the candidacy of any of the candidates seeking election at the shareholders' general meeting if they have been successful. 42 There is, therefore, no evidence that the convening of the meeting by the defendants has any effect on restricting the ability of shareholders to vote on the resolutions at either of the general meetings. Given the statutory right which exists to call a general meeting, I am unable to find in the circumstances relied on an impropriety such as would qualify as an improper purpose in consideration of the application of s 249Q. 43 Therefore, I do not consider that Reefton has succeeded in establishing a serious issue to be tried in respect of any of the matters which it has raised.

balance of convenience 44 This is not a case where the shareholders will be excluded from voting in respect of any of the persons who have accepted the invitation to nominate as directors in response to Reefton's letter of 8 December 2006. It is accepted by the defendants that if their general meeting proceeds and the directors nominated for election on that occasion are successfully elected, there nevertheless will be an election at the Reefton general meeting in respect of the remaining candidates. That point has been made above but is also relevant to the balance of convenience. 45 It is not correct to say that unless the shareholders general meeting is restrained their directors will have the advantage of being elected without competition. It is quite open to the shareholders either not to elect the directors nominated at the shareholders' general meeting or to add additional numbers at Reefton's general meeting. It is difficult in those circumstances to see the particular merit in the advantage which accrues to the directors who are candidates at the shareholders' meeting. Certainly it is not a foundation upon which to conclude that the candidates at the shareholders' general meeting are not persons who will bona fide act for the company as a whole. 46 As follows from the conclusions in relation to whether there is serious issues to be tried there is no weight to be given to those issues in weighing the balance of convenience.

conclusion 47 For these reasons I consider that the application for injunctive relief pursuant to s 1324(1) of the Corporations Act or alternatively s 23 of the Federal Court of Australia Act 1976 (Cth), must be refused. I certify that the preceding forty-seven (47) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Nicholson.

Solicitor for the Plaintiff Blake Dawson Waldron

Counsel for the Defendants: M Bennett with P van der Zanden