Reefton Mining NL v Kimbriki Nominees Pty Ltd

Federal Court of Australia|1994-02-22|Before: Nicholson J

REASONS FOR JUDGMENT 1 The plaintiff (Reefton) seeks that the six defendants be restrained from proceeding with a general meeting of shareholders of Reefton on 22 January 2007, of which written notice was issued by the defendants and dated 20 December 2006. Reefton seeks the restraint because it has issued a notice of general meeting for 12 February 2007. 2 The restraint sought is an instance when the decision on the interlocutory application is likely, in a practical sense, to determine the whole proceedings and thus to have serious consequences for which ever party does not succeed: Kolback Securities Ltd v Epoch Mining NL (1987) 8 NSWLR 533 at 536 (Kolback 8 NSWLR); Quebond Pty Ltd v Sita (1994) Supreme Court (NSW), 22 February 1994 at 6. Consequently, it was accepted that it was important for the Court to evaluate the strength of the applicant's case for final relief for reasons explained in Kolback 8 NSWLR. 3 Reefton relies on the affidavit of Mr Katchan, a director of Reefton, a qualified geologist holding the position of technical director of the company. Additionally it relies on the affidavit of Mr Lee, solicitor employed by Reefton's solicitors who filed an affidavit supporting the hearing of the application on an expedited basis. 4 A number of objections basically on hearsay grounds were taken to [9], [10], [11], [16], [17], [18], [19], [27], [28], [31] and [32] of Mr Katchan's affidavit. It is unnecessary to resolve these with any particularity because the circumstances in relation to which it is necessary to make findings appear adequately from exhibited documents to which no objection is taken.

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

Corporations Act 2001(Cth)ss 136(2), 201A(2), 249F, 249F(2), 249Q, 1324(1)

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