SANDY -v- YINDJIBARNDI ABORIGINAL CORPORATION RNTBC [No 2] [2016] WASC 75 (9 March 2016)

48 Section 17615 provides that a proceeding under this Act, which includes a board of directors' meeting, is not invalidated because of any procedural irregularity unless the court is of the opinion that the irregularity has caused or may cause substantial injustice that cannot be remedied by any order of the court and by order declares the proceeding to be invalid. I am of the opinion that the irregularity has caused or may cause substantial injustice that cannot be remedied by any order of the court. The failure to give reasonable notice to Ms Tucker caused her not to attend the meeting. Rule 5.20 provides that decisions of the directors shall be made in accordance with r 14 and r 15. Rule 14 provides for the decisionmaking process in matters that do not affect native title rights or interests. Rule 14.1 provides that matters shall be decided by the directors by consensus. Consensus is defined by r 22 to mean:

General agreement among the members present as to a particular matter whereby differing points of view, if any, have been considered and reconciled and any decision is generally agreed upon in accordance with law and custom. For the avoidance of doubt, a decision made by consensus in accordance with law and custom, does not necessarily require that the decision be agreed upon unanimously.

The rule requiring decisionmaking by consensus was considered by Kenneth Martin J in Adams v Yindjibarndi Aboriginal Corporation RNTBC [2014] WASC 467. His Honour observed that there is an evident lack of clarity from the definition over what might actually ever constitute a consensus. The lack of clarity comes from at least two sources. One is the explicit statement in the last sentence, that there does not need to be unanimity. Second is the elliptical reference in the definition to differences being considered and reconciled and any decision generally agreed upon 'in accordance with law and customs'. 'Law and customs' is also defined in the Rule Book to mean:

The body of traditions, laws, customs and beliefs recognised and held in common by the common law holders, and includes those traditions, laws, customs and beliefs exercised in relation to a particular area of land and waters, traditionally accessed resources, and persons.

Kenneth Martin J said that in the content of 'law and custom' so defined is porous. His Honour said:

In a general sense, one can see a generalised wisdom in seeking, where possible, a consensus for the decisions of corporate boards. It is often said that the best board chairs always do strive to govern by a broad based consensus, rather than by formally demanding divisions by director votes upon every issue.

No sensible person would want to deprecate such a wholesome notion of consensus in a general sense. Seeking consensus in directors board meetings, in terms of evaluating the merits or demerits of proposals for factions by the board of directors of a corporation is one thing.

But attempting to apply the notion of 'consensus' in the very different context of a general meeting of some 200 assembled meeting voters, and with some members exercising proxy votes, or there being other persons attending who act as proxies, presents as a totally different proposition in terms of workability [94] - [96].

49 The directors' meeting lasted more than five hours. Agenda item 7, to decide membership applications, is a contentious issue. Membership applications had been considered at earlier meetings which had resulted in a deadlock. Membership applications are the subject of proceedings in this court and of a mediation conducted by Chaney J. Middleton Cheedy explained that at the directors' meeting the directors present considered each applicant and discussed what they each knew of the applicants of their own knowledge. Given the requirement that the directors' decisionmaking be by consensus it is not possible to say that the outcome of this, and other agenda items, would not have been different if Ms Tucker had received notice and attended the meeting. For that reason, I am of the opinion that the irregularity in failing to give Ms Tucker reasonable notice of the meeting caused or may have caused substantial injustice that cannot be remedied by an order of the court. If the meeting had not been invalid because directors had ceased to hold office, I would have declared it to be invalid by reason of the procedural irregularity in failing to give reasonable notice of the meeting to Ms Tucker.

50 The plaintiff says that the resolutions passed at the meeting on 16 December 2015 to accept the New Members as members was made for the improper purpose of creating a majority of members to appoint the second defendants other than Ms Tucker as directors.

51 The directors of YAC are in a fiduciary relationship with it and may not exercise their powers for any purpose foreign to those powers. Section 2655 of the CATSI Act provides that a director must exercise his or her powers and discharge his or her duties in good faith in the best interests of the corporation and for a proper purpose. Section 2655 mirrors the good faith and proper purpose obligations in s 181 of the Corporations Act. Neither the CATSI Act nor the Corporations Act contain any definition of 'proper purpose'. However, there is substantial case law which makes use of the 'proper purpose' standard.

52 In Howard Smith Ltd v Ampol Petroleum Ltd [1974] UKPC 3; [1974] AC 821, directors caused shares to be issued at a time when the company was embroiled in a hostile takeover bid by Ampol. The directors did not want Ampol to buy the shares as Howard Smith had bettered the terms for takeover by offering employment to the directors even in the future. The directors issued shares to Howard Smith which blocked Ampol's takeover bid and facilitated that of Howard Smith. The Privy Council held that although the directors had acted honestly and had power to make the allotment, to alter a majority shareholding was to interfere with that element of the company's constitution which was separate from and set against the directors' powers and, accordingly, it was unconstitutional for the directors to use their fiduciary powers over the shares in the company for the purpose of destroying an existing majority or creating a new majority; and that, since the directors' primary object for the allotment of shares was to alter the majority shareholding, the directors had improperly exercised their powers and the allotment was invalid.

53 In Whitehouse v Carlton Hotel Pty Ltd [1987] HCA 11; (1987) 162 CLR 285, a director admitted issuing shares in an attempt to influence control. The court accepted that the director had been motivated by a desire to do what he believed to be in the best interests of the corporation. The majority in the High Court held that:

[W]hat was conferred upon Mr Whitehouse was the power to allot shares ... and the cases clearly establish that a purpose of manipulating the voting power of shareholders is, at least ordinarily, foreign to such a power (292).

As to Mr Whitehouse's assertion that he acted in what he honestly believed was in the best interests of the company, the court held:

[I]t is simply not to the point that Mr Whitehouse believed that it was in the overall interests of the company that the voting power attaching to the shares held by his former wife be diluted so as to ensure that the control of the company in the period after his death would be in the hands of those whom he favoured. That belief was an explanation of, or reason for the allotment for the impermissible purpose. It did not constitute a competing permissible purpose (293).

54 The onus of proving the impermissible purpose is upon the plaintiff. In Ngurli Ltd v McCann [1953] HCA 39; (1953) 90 CLR 425, Williams ACJ, Fullagar and Kitto JJ said:

The onus, of course, lies on the plaintiffs to prove that [the director] used the power for an ulterior purpose; that is to say to prove, in the words of the present Chief Justice in Mills v Mills: 'The substantial object the accomplishment of which formed the real ground' (445).

However, the impermissible purpose need not be the dominant purpose. It is sufficient if it is causative. In Whitehouse v Carlton Hotel Pty Ltd, Mason, Deanne and Dawson JJ said:

As a matter of logic and principle, the preferable view would seem to be that, regardless of whether the impermissible purpose was the dominant one or but one of a number of significantly contributing causes, the allotment will be invalidated if the impermissible purpose was causative in the sense that, but for its presence, 'the power would not have been exercised' (294).

55 The Rules conferred on the directors the power to accept or refuse a membership application. To exercise the power for the purpose of manipulating the voting power of members, or creating a new majority of members, is foreign to the purpose of the power.

56 As I have said, the plaintiff says that the directors passed the resolutions to accept the New Members as members and to call a general meeting to appoint directors. This was for the improper purpose of creating a new majority to appoint the second defendants other than Ms Tucker, or those who supported them, as directors. The plaintiff relies in part on the circumstances leading to the meeting on 16 December 2015. At an extraordinary general meeting of YAC on 10 November 2014 motions were put to remove the incumbent directors other than Ms Tucker and appoint in their place persons who are members of WMYAC. The motions were supported by a majority but not the required special majority and so were lost. On 30 November 2015 at an annual general meeting for the years 2014 and 2015 a motion was put that the incumbent directors other than Ms Tucker be appointed as directors. There were 156 votes in favour and 100 votes against (60.9% in favour). The motion was declared not passed by the requisite special majority. This was followed by a second motion that 12 persons who were members of WMYAC be appointed. There were 98 votes in favour and 156 votes against (38.6% in favour). The motion was declared not passed. I observe that 46 New Members would be a significant addition to the YAC membership although the addition of the New Members to the majority block voting on 30 November 2015 would not be sufficient to achieve a 75% majority unless some of the minority voters changed sides or failed to vote.

57 One hundred fifty four Yindjibarndi people who support WMYAC have applied for membership of YAC since 2012. Of those, 61 applications have been rejected and 81 have not yet been dealt with by the board of directors. Twelve applications have been approved and they are among the New Members of YAC approved at the 16 December 2015 meeting. The plaintiff gave uncontradicted evidence that based on how their family members voted at the 2014/2015 YAC AGM those people may now support the CEO Mr Woodley and the incumbent directors other than Ms Tucker. A mediation involving an anthropologist and four Yindjibarndi elders was conducted on 4 August 2014 before Justice Chaney in Karratha to consider and determine 125 outstanding YAC membership applications. The outcome of the mediation was that each of the applicants was classified as yes, no or undecided.

58 The 16 December 2015 meeting appears to have been arranged more hastily than usual. Only five days' notice was given to directors, other than Ms Tucker, when usually seven days' notice is given. There were 11 items of business. Items 1 and 2 were recording attendances and apologies. Item 3 was approving the previous minutes. Item 4 was business arising out of the minutes and consisted principally of noting the resignation of certain YAC members. Item 6 was the presentation by KPMG of financial accounts from 1 July 2015 to 16 December 2015. The minutes record simply that KPMG presented the accounts and the directors resolved to agree and authorise expenditure in accordance with the accounts. Item 9 was an update on legal actions and matters. There were no resolutions passed in relation to that item. Item 10 is a discussion of proposed membership changes at the Ngarluma Yindjibarndi Foundation Ltd (NYFL) whereby NYFL may request YAC to assist them with identifying the Yindjibarndi members. The minutes record simply that it was resolved that the YAC directors agree to assist NYFL to identify the Yindjibarndi members if requested by NYFL to do so. Item 11 was general business. There was no general business. The three substantive items were items 5, 7 and 8. Item 5 was the replacement of YAC director Charmaine Adams. The minutes record that a resolution to appoint Kevin Guinness to the casual director position was passed. Item 7 is the item concerning YAC membership. The minutes record:

1. The YAC directors considered the 40 undecided membership applications which was the outcome of the Deed of Settlement and detailed in the YAC resolution dated 11 August 2014 (resolution attached to these minutes).
2. The YAC directors considered the member applications presented and listed in the spreadsheet (spreadsheet attached to these minutes).
3. Acting upon, and taking into account, points i and ii above, the YAC directors decided to accept the people listed below as YAC members based upon clauses 3.1 and 3.2 of the YAC Rule Book including their knowledge of that person's genealogy - see spreadsheet for further details).

The 'people listed below' are the New Members set out in the Table.

59 Mr Sandy's unchallenged evidence is that the New Members are persons within the Yindjibarndi community supportive of Mr Woodley and some of the purported directors of YAC. Thus, notwithstanding that membership applications that have been pending for some time, and were the subject of the mediation in August 2014, were not resolved at the directors' meeting, the directors resolved to accept the membership applications of the New Members.

60 The only directors who gave evidence were Lyn Cheedy and Middleton Cheedy. Lyn Cheedy said that Mr Woodley telephoned her with a view to calling a directors' meeting. Ms Cheedy gave the following evidence about that telephone conversation:

Q: He said 'We need to get the directors in to chat about some matters - some legal matters?'

A: Yes. Some legal matters and some other issues.

Q: See you had just had the annual general meeting on 30 November.

A: Yes.

...

1. And, once again, that meeting had the problem of no-one within the organisation being able to get 75% of the vote?

A: Yes.

Q: So another long meeting - there have been two long meetings inclusive because of the voting split in the community?

A: Yes.

Q: Did he mention that that was an issue that you needed to address?

A: I think - yes. I think one of those things was ...

Q: Did he say that what he wanted to do was to call a special general meeting to - so everyone could vote on the directors and they could be - clear their way forward?

A: Yes, he did.

...

Q: Before calling a meeting you would need to go through and check the membership?

A: I think we've done that. Yes. Well, the membership had been deferred from August 2014 after a mediation with Chaney J in Karratha.

Q: Yes. That was in August 2014. We're now over a year later and nothing had been done about membership for over a year.

A: Nothing had been done over a year because of - we have had Supreme Court actions in the court.

Later, Ms Cheedy was crossexamined about the purpose of the meeting on 16 December:

Q: Really, the purpose of the meeting on the 16th was to go along with Mr Woodley's suggestion that you call a special general meeting of the members to be held in the early part of 2016, to vote again on just a few issue of the board, to break the deadlock that had been dividing the community. Isn't that right?

A: It wasn't his suggestion. If spoken to - it's a decision that has been made by all of the board that sits on there.

Q: Yes, well, it was proposed by him, wasn't it?

A: Yes. Yes, it's proposed.

Q: And the idea of adding members - new members, was to ensure that you could break the deadlock of nobody having - neither camp having 75% of the votes. That was the purpose of the meeting, wasn't it?

A: And there was some other issues, I think that - yes. Yes. Stop outsiders being proxy holders.

Ms Cheedy rejected the proposition put to her that the 46 membership applications who were accepted were thought by her to support her and the board. She said 'It's not because we accept people to get over the line for something'.

61 Middleton Cheedy was not involved in calling the meeting of 16 December 2015. He attended the meeting and gave evidence of what occurred at the meeting. His crossexamination concluded as follows:

Q: Really, it was the case that you went along to this meeting on 16 December 2015 to add more members to try and break the deadlock that had caused all the problems in the last two general meetings, wasn't it; you were adding people as members. If they applied, you were going to add them?

A: Yes, that was the trouble, because we were sick of this fighting.

62 Counsel for the defendants submitted that Middleton Cheedy's evidence should not be taken at face value for cultural reasons. I observed Mr Cheedy carefully whilst he was giving his evidence. He was not intimidated by the court process. He did not concur gratuitously, that is assent to every proposition put to him even when he did not agree. When he did not agree with a proposition put to him he said so. His answer to the last question in crossexamination, which I have set out above, was not a case of gratuitous concurrence or a result of intimidation. It was his evidence freely given and I accept it.

63 I find that the directors passed the membership resolution and the special general meeting resolution for the purpose of convening a special general meeting early in the new year and adding new members who they believed would support the incumbent directors other than Ms Tucker in voting to appoint the incumbent directors other than Ms Tucker as directors at the special general meeting. I make that finding on the whole of the evidence but having special regard to the following. First, at the instigation of Mr Woodley, Ms Cheedy called the meeting to address the problem of noone within the corporation having been able to get 75% of the vote at the two previous general meetings and to call a special general meeting to clear their way forward. Secondly, the principal business at the meeting was appointing new members and convening a special general meeting. Thirdly, the directors' meeting was convened more hastily than usual when there was no urgency other than resolving the appointment of directors. Fourthly, the directors approved only the applications of the New Members, who are believed to be supporters of Mr Woodley and the incumbent directors, and did not consider the other membership applications that had been outstanding since at least 2014. Fifthly, Middleton Cheedy, whose evidence I accept, conceded that the directors went along to the directors' meeting to add more members to try and break the deadlock that had caused all the problems in the last two general meetings. Sixthly, apart from Lyn Cheedy and Middleton Cheedy none of the other directors who attended the meeting gave evidence. The unexplained failure by the defendants to call the other directors as witnesses leads to the inference that the uncalled evidence would not have assisted the defendants' case.

64 I have found that the second defendants' appointments as directors have ceased and hence YAC currently has no directors. The plaintiff submitted that in those circumstances the court should appoint a receiver over the property of YAC with such powers as the court considers appropriate. The plaintiff submitted that those powers should include the power to call a general meeting and to admit and remove persons as members of the corporation.

65 Supreme Court Act 1935 (WA) s 25(9) empowers the court to appoint a receiver in all cases in which it shall appear to the court to be just or convenient to do so and any such order may be made either unconditionally or upon such terms and conditions as the court think just. The words 'just or convenient' mean where it is practicable and the interests of justice require it. The court's discretionary power to appoint a receiver is construed broadly and it must be exercised with a view to all the circumstances of the case. Before the court exercises the power to appoint a receiver it should be persuaded that there is no reasonable or satisfactory alternative: Re Avonwood Homes Pty Ltd [2000] VSC 216 [8] (Mandie J).

66 Chapter 11 of the CATSI Act provides for corporations to be placed under special administration and a special administrator appointed. Section 4871 empowers the Registrar to put a corporation under special administration. The grounds for determining that a corporation is to be under special administration are set out in s 4875. At least two of those grounds potentially apply to YAC. One is that disputes between the corporation's members or the corporation's members and the corporation's officers are interfering with the proper conduct of the corporation's affairs. Another is that the appointment of the special administrator is otherwise required in the interests of the members of the corporation or in the public interest. Both of those grounds potentially apply in circumstances, as here, where disputes between the corporation's members have resulted in a deadlock at general meetings which has prevented the appointment of directors and the appointment of directors has ceased so that the corporation currently has no directors. The revised explanatory memorandum to the Corporations (Aboriginal and Torres Strait Islander) Bill 2006 stated that the term 'special' is used to distinguish administration under the CATSI Act from administration under the Corporations Act and also relates to the application of the CATSI Act as a special measure for the advancement and protection of Aboriginal people and Torres Strait Islanders. The revised explanatory memorandum said that placing a corporation under special administration, appointing a special administrator and conducting a special administration will be informed by the objects and aims of the CATSI Act as opposed to an administration under the Corporations Act which is principally driven by the interests of creditors and the certainty of commercial transactions. Section 48710 allows the corporation to show cause why the corporation should not be placed under special administration. However, s 48710(2) allows the show cause notice procedure to be dispensed with in urgent circumstances, one or more of which potentially apply in this case.

67 Section 4995 sets out the powers of a special administrator. Those powers are wide enough to permit the special administrator to call a general meeting of members. Furthermore, the special administrator may admit a person as a member of the corporation or remove a person as a member of a corporation. Such a power would permit a special administrator to resolve the membership of the corporation before a general meeting. Section 5085 provides for the election of directors to assume control of the corporation's affairs immediately after the corporation ceases to be under special administration.

68 It is not appropriate for the court to exercise the power to appoint a receiver at this time. The Parliament has made provision in the CATSI Act for dealing with corporations that have become dysfunctional because of disputes between members or, as here, where the corporation has ceased to have directors and is unable to appoint new directors. The methods for dealing with such a situation that have been made available by the Parliament should not be disregarded and the court should not use it powers to appoint a receiver when the method of dealing with the situation provided for by the CATSI Act is available. For that reason I am not persuaded that it is just and convenient to appoint a receiver.

69 The plaintiff should give notice to the Registrar of Aboriginal and Torres Strait Islander Corporations by delivering to the Registrar a copy of these reasons for decision and the orders that are made to give effect to them. I will not dismiss the application for a receiver. I will adjourn the plaintiff's application for the appointment of a receiver so as to enable notice to be given to the Registrar and to give the Registrar a reasonable opportunity to determine whether to appoint a special administrator or to take some other action to deal with the circumstance that YAC has no directors.

70 There should be declarations to the effect that the second defendants have ceased to be directors of YAC, that the purported directors' meeting held on 16 December 2015 was not a valid meeting and that the resolutions purportedly carried at the meeting held on 16 December 2015 are invalid and of no effect. The plaintiff should deliver a copy of these reasons for decision and a copy of the orders to give effect to them to the Registrar. The plaintiff's application for a receiver should be adjourned to give the Registrar an opportunity to consider whether to appoint a special administrator or take some other action in relation to YAC.