Scheuer (Trustee) v Endless Solar Corporation Limited

Federal Court of Australia|2023-03-29|Before: O'Bryan J

THE COURT NOTES the undertaking of the plaintiff given by its counsel: (a) to submit to such order (if any) as the Court may consider to be just for the payment of compensation, (to be assessed by the Court or as it may direct), to any person, (whether or not that person is a party), affected by the operation of order 1 or any continuation (with or without variation) of the order; and (b) to pay the compensation referred to in (a) to the person affected by the operation of the order or undertaking.

THE COURT ORDERS THAT:

Until the hearing and determination of this proceeding or further order, the first and second defendants, whether by themselves, their officers, servants or agents, be restrained from arranging to hold, holding or purporting to hold the general meeting of the third defendant which is scheduled for 30 March 2023 at 11am.
This proceeding be case managed together with NSD 172 of 2023 (Reinstatement Proceeding).
This proceeding and the Reinstatement Proceeding be listed for further case management on a date to be fixed and notified to the parties.
Costs be reserved.
There be liberty to apply. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

Introduction 1 On 28 March 2023, the plaintiff (Nathan Joseph (Nick) Scheuer, in his personal capacity and in his capacity as trustee of the Asher & Wald Trust) filed an originating process seeking relief against the first defendant, Endless Solar Corporation Limited (Endless Solar), and the second defendant, Harvard Nominees Pty Ltd (Harvard). The relief concerns the third defendant, Speedpanel Australia Ltd (SPA). In broad terms, Mr Scheuer sought the following orders: (a) interlocutory and final injunctions restraining Endless Solar and Harvard from arranging to hold, holding or purporting to hold a general meeting of SPA which was scheduled for 30 March 2023 at 11am; (b) interlocutory and final injunctions restraining Endless Solar and Harvard from arranging to hold, holding or purporting to hold any general meeting of SPA unless and until the register of members of SPA has been created or alternatively corrected; (c) a declaration that the purported notice of meeting of the members of SPA given by Endless Solar and Harvard on or about 9 March 2023 was invalid; (d) a declaration that there is no register of members of SPA; and (e) orders for the creation, or alternatively the correction, of the register of members of SPA, as revealed by, and as a result of, a proper investigation by forensic accountants engaged by SPA, or otherwise as found by the Court. 2 On the same day, Mr Scheuer also filed an interlocutory process seeking an urgent interlocutory injunction restraining Endless Solar and Harvard from arranging to hold, holding or purporting to hold the general meeting of SPA which was scheduled for 30 March 2023 at 11am. The interlocutory application was supported by: (a) an affidavit sworn on 28 March 2023 by Mr Scheuer; and (b) an affidavit sworn on 28 March 2023 by Brendan Peter Swift of Altus Lawyers, being Mr Scheuer's solicitor. 3 Mr Swift's affidavit annexed the first affidavit affirmed on 1 March 2023 by Robert James True, a solicitor employed by Quinn Emanuel Urquhart & Sullivan, LLP, the solicitors for Endless Solar, which had been read in proceeding NSD 172 of 2023. In that proceeding, Endless Solar sought and was granted orders reinstating the registration of SPA (Reinstatement Proceeding). 4 Mr Scheuer also filed written submissions in support of the interlocutory application prepared by his counsel, Dr Bigos KC and Mr Annabell. 5 The interlocutory application was heard by me on 29 March 2023 in the Commercial and Corporations duty list. 6 Mr True appeared on behalf of Endless Solar at the interlocutory hearing to oppose the interlocutory relief sought by Mr Scheuer. Mr True informed the Court that both Endless Solar and Harvard are companies associated with Mr David Craig, who provides instructions to Mr True's firm, Quinn Emanuel Urquhart & Sullivan, LLP. However, as at the time of the hearing, Mr True did not hold a retainer from Harvard. Endless Solar tendered the following further affidavits which had been read in the Reinstatement Proceeding: (a) the affidavit sworn on 1 March 2023 by David Harold Allen Craig, a director of Endless Solar; (b) the second affidavit affirmed on 1 March 2023 by Mr True; and (c) the third affidavit affirmed on 1 March 2023 by Mr True. 7 At the hearing on 29 March 2023, I granted the interlocutory relief sought by Mr Scheuer and made orders for the further case management of the proceeding. These are my reasons for making those orders.

Background 8 The proceeding involves an unusual set of circumstances. The evidence on the interlocutory application discloses the following facts. 9 SPA was originally registered on 22 January 2004, having been founded by Mr Scheuer. Its business comprised products for the construction of walls, using lightweight panels which could be filled with a concrete inner core. It appears not to be in dispute that, at all relevant times, Mr Scheuer has been a shareholder of SPA, both in his personal capacity and as trustee for the Asher & Wald Trust. 10 In March 2017, following financial difficulties, SPA was placed into voluntary administration. 11 On 10 October 2017, a deed of company arrangement (DOCA) for SPA (and related companies) was executed. 12 In June and July 2020, Mr Scheuer and the remaining directors of SPA resigned. From 3 July 2020, SPA had no directors. 13 As at July 2020 and at all times since, the registered office of SPA has been 421 Dorset Road, Bayswater. That is also the location where Mr Scheuer continues to carry on business. 14 In around June 2022, SPA was deregistered by the Australian Securities and Investments Commission (ASIC) under s 601AB of the Corporations Act 2001 (Cth) (Act). 15 In February 2023, Endless Solar commenced the Reinstatement Proceeding against ASIC seeking orders for the reinstatement of the registration of SPA pursuant to s 601AH(2) of the Act. Mr Scheuer was not given notice of the application for reinstatement. The evidence filed on that application indicates that Endless Solar sought the reinstatement of the registration because: it wishes to bring a claim for oppression against SPA based on oppressive conduct; it believes that SPA has valuable property in the form of claims for breach of duty against certain of its former directors and service providers, including its auditors and its former lawyers; and it wishes to bring a derivative proceeding in the name of SPA against those persons. 16 A difficulty with the reinstatement of the registration of SPA was that there were no directors of the company. To address that difficulty, Judicial Registrar Luxton made orders on 2 March 2023 in the Reinstatement Proceeding including that: (a) ASIC reinstate the registration of SPA by 5:00 pm on 3 March 2023; and (b) if, by 31 March 2023, no directors were appointed to SPA, Endless Solar must file and serve by 14 April 2023 an interlocutory process seeking orders that: (i) a meeting of SPA's members be called pursuant to s 249G of the Act, or on some other basis, for the purpose of considering any proposed resolution concerning the appointment of directors; or (ii) SPA be wound up. 17 On 8 March 2023, Mr Scheuer received an email from Mr Steve Happell with the subject line "SPA shareholders meeting". Mr Happell is a former director of SPA who was removed as a director by the administrators of SPA pursuant to s 442A of the Act in October 2017. The email attached two purported proxy forms. The first was addressed to Mr Scheuer. The second was addressed to "The Directors, The Asher & Wald Trust". The forms were otherwise identical and included the following matters: (a) The forms were on letterhead bearing the title "Speedpanel Australia Ltd". (b) The forms purported to be for the appointment of proxies to vote a meeting of members of SPA to be held "at the Mezzanine at Queen and Collins, 376 - 390 Collins Street Melbourne, Vic., 3000 on 30th March 2017 at 11.00 am". (c) The forms contained the following notation: I David Harold Allen Craig, a Shareholder of the recently reregistered Speedpanel Australia Ltd on the ASIC database (through Harvard Nominees Pty Ltd, ACN 006419601 and Endless Solar Corporation Ltd, ACN 120123708661), together representing more than 5% of the total company shareholding, hereby requisition a general meeting of Speedpanel Australia Ltd. to consider and if thought fit to pass the following resolutions: 1. David Harold Allan Craig be appointed to Chair this meeting. 2. Cathy Lin appointed as a Director of Speedpanel Australia Ltd. immediately following the vote. 3. Stephen Happell appointed as a Director of Speedpanel Australia Ltd. immediately following the vote. 4. David Craig appointed as a Director of Speedpanel Australia Ltd. immediately following the vote. (d) The form stated that the proxies must be received at the following address: "Speedpanel Australia Ltd, 555 Old Moorooduc Road, Tuerong, Vic, 3915". 18 On 9 March 2023, Mr Scheuer received a further email from Mr Happell's email address titled "Notice of Speedpanel Australia Limited Shareholders meeting 30 March 2023". That email stated as follows: Following the recent reregistration of Speedpanel Australia Limited (ACN 107 723 240), this meeting has been called by 2 shareholders, Harvard Nominees Pty Ltd & Endless Solar Corporation Limited. The meeting is to be held on 30 March 2023 at 11.00AM at the Mezzanine, corner of Queen & Collins Streets (376 - 390 Collins Street). 19 Despite being sent from Mr Happell's email address, the email concluded with "Best regards, David Craig". 20 On 14 March 2023, Mr Scheuer sent an email to Mr Happell asking for a list of shareholders along with their contact details and relevant shareholdings. On 18 March 2023, Mr Happell replied with a list of shareholders (but not contact details or numbers of shares held). It appears from that email that the list was the names of shareholders to whom notice of the meeting had been given.

Applicable principles 21 The principles applicable to interlocutory injunctive relief are well established. The applicant must establish that they have a prima facie case for the relief they seek and the balance of convenience favours the granting of an injunction: Australian Broadcasting Corporation v O'Neill (2006) 227 CLR 57 at [65] (Gummow and Hayne JJ); Beecham Group Ltd v Bristol Laboratories Pty Ltd (1968) 118 CLR 618 at 622-623 (Kitto, Taylor, Menzies and Owen JJ). These principles are interdependent. The strength of the parties' substantive cases may be relevant to the evaluation of the balance of convenience: Bradto Pty Ltd v Victoria (2006) 15 VR 65 at [39]; Samsung Electronics Company Ltd v Apple Inc (2011) 217 FCR 238 at [67] ; Australian Competition and Consumer Commission v IVF Finance Pty Limited (No 2) [2021] FCA 1295 at [74] (O'Bryan J).

Prima facie case 22 Endless Solar and Harvard have attempted to convene a meeting of members of SPA under s 249F of the Act in order to appoint directors to the board of SPA. At the hearing, it was common ground that the directors proposed to be appointed, Mr Craig, Ms Lin and Mr Happell, are all associated with Endless Solar and Harvard. Section 249F provides as follows: 249F Calling of general meetings by members (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 is called. 23 A shareholder calling a meeting under s 249F must comply with the requirements of Div 3 of Pt 2G.2 of the Act, and the constitution of the company: Central Exchange Ltd v Rivkin Financial Services Ltd [2004] FCA 1546; 213 ALR 771 at [24], [28]-[32] (Emmett J). The relevant requirements include those relating to the notice of the meeting that must be given to all members and any proxy form that is given to members.

Notice of meeting 24 With respect to notice of a meeting, s 249H(1) stipulates that, subject to the company's constitution specifying a longer period, at least 21 days notice must be given of a meeting of a company's members. SPA's constitution does not specify another period. Section 105 of the Act has the effect that, in calculating the 21 days, the day on which notice of the meeting is taken to be given is to be counted, but the day of the meeting is not to be counted: McLaughlin v Dungowan Manly Pty Ltd [2010] NSWSC 187 at [397] (Ward J). Accordingly, for a meeting that will occur on 30 March 2023, notice of the meeting must be given on or before 9 March 2023. In the present case, if it is permissible to give a notice of meeting of the members of SPA by email, then the notice period was satisfied. 25 There is doubt, however, whether it is permissible for a notice of meeting of the members of SPA to be given by email, as occurred in the present case. It is necessary to consider the rules with respect to the giving of notices in both SPA's constitution and the Act. While those rules govern the giving of notices to members by the company rather than notices given by a member, s 249F(2) has the effect that those rules are applicable to a meeting called by members under s 249F. 26 Clause 92(1) of SPA's constitution stipulates that: A notice may be given by the Company to any member either by serving it on him personally or by sending it by post to him at his address as shown in the register of members or the address supplied by him to the Company for the giving of notices to him. 27 Clause 93(1) further stipulates that: Notice of every general meeting shall be given in the manner authorised by Clause 92 to: (a) every member; (b) every person entitled to a share in consequence of the death or bankruptcy of a member who, but for his death or bankruptcy, would be entitled to receive notice of the meeting; and (c) the Auditor for the time being of the Company. 28 Whilst cl 92(1) uses the permissive language "may", the combined effect of cll 92 and 93 strongly suggests that cl 92(1) is intended to specify the permissible means by which notices of meeting are to be given to members. Those means are: (i) by personal service; or (ii) by post (at the address of the member shown on the register of members or another address specified by the member for the receipt of notices). Clause 92(1) does not contemplate the giving of notices by email. 29 Division 2 of Pt 1.2AA of the Act contemplates that documents may be sent by a company to its members by electronic communications. Section 110E enables a member to elect to receive documents in physical form or in electronic form by notifying the company of the election and s 110F requires the company to comply with the election made by a member. Division 2 does not expressly address the circumstance where a member has made no election, but s 110D stipulates that documents may be sent to a recipient: (a) in a physical form; (b) by sending the recipient sufficient information in physical form to allow the recipient to access the document electronically; (c) by sending the document in electronic form by means of an electronic communication; or (d) by sending the recipient sufficient information in electronic form, by means of an electronic communication, to allow the recipient to access the document electronically. 30 In the present case, the parties did not address submissions to the question whether the provisions of Div 2 of Pt 1.2AA of the Act, and s 110D specifically, are to be construed as overriding contrary stipulations in a company's constitution. In my view, this raises a serious question to be determined. It is at least arguable, indeed strongly arguable, that s 110D is not intended to override contrary stipulations in a company's constitution. I am therefore satisfied that Mr Scheuer has established a prima facie case that the notices of meeting sent by Endless Solar and Harvard by email failed to comply with s 249H of the Act in light of the notice requirements in SPA's constitution. 31 Section 249J stipulates that written notice of a meeting of a company's members must be given individually to each member entitled to vote at the meeting and to each director. Under s 168 of the Act, SPA is required to keep a register of members. The members of SPA are those persons who were members upon its registration, and those who became members later and whose names were entered on the register of members: see s 231 of the Act. 32 In the Reinstatement Proceeding, Mr True gave evidence that he had been provided with a copy of SPA's share register dated May 2015, and produced that document. The document bears the title "SPA Shares and Options Register May 2015". It consists of a table that includes columns listing the share certificates issued by SPA, the names of shareholders, transactions in respect of the shareholdings, the total shares held and the percentage of shares held. No evidence was given by Mr True about the origin of the document. For that reason, I would give the document little weight. Further, the evidence given by Mr Scheuer throws material doubt on the accuracy and reliability of the document produced by Mr True. First, Mr Scheuer gave evidence that he is not presently aware of the location of the register of members of SPA. Second, Mr Scheuer produced another version of the document produced by Mr True, but which contains different details including as to the names of shareholders, the number of shares held by each shareholder and the total number of issued shares. It should be noted, though, that Mr Scheuer could not attest to the accuracy of the document he produced. Third, Mr Scheuer produced an Excel spreadsheet titled "SPA Rights Issue Breakup.xlsx". That document again shows different shareholdings. The evidence indicates that that document was created on 17 May 2016 and last saved on 22 July 2016. Fourth, Mr Scheuer produced a document entitled "Speedpanel Australia Proxy Votes Summary" which purported to be a record of proxies cast in respect of a meeting of members of SPA in or about March 2017. 33 Even more significantly, the evidence indicates that Endless Solar and Harvard did not send notices of meeting to the shareholders shown on the document titled "SPA Shares and Options Register May 2015". Mr Happell's email to Mr Scheuer dated 18 March 2023 shows that notices of meeting were sent to a subset of those shareholders. The evidence did not make clear how Endless Solar and Harvard selected the persons to whom the notices of meetings were sent. 34 The evidence referred to above establishes a prima facie case that: first, the list of shareholders to whom notices of meeting were sent by Mr Craig is not a complete list of the current members of SPA; and second, that Endless Solar and Harvard are not in possession of an accurate register of members. Thus, Mr Scheuer has established a prima facie case that, in attempting to convene a meeting of the members of SPA, Endless Solar and Harvard did not comply with s 249J of the Act and are in fact unable to comply (because they do not have an accurate register of members). Non-compliance with the requirements of s 249J is a serious matter because it undermines shareholder democracy.

Proxy forms 35 The evidence also discloses a prima facie case that the proxy forms compiled by Endless Solar and Harvard did not comply with all necessary legal requirements. First, the proxy forms sent to Mr Scheuer contained erroneous information: (a) the forms erroneously referred to a meeting to be held on 30 March 2017, rather than 30 March 2023; (b) the forms erroneously referred to the meeting being called personally by Mr Craig (albeit "through" Endless Solar and Harvard), rather than the meeting being called by Endless Solar and Harvard; and (c) one of the proxy forms was erroneously directed to "The Directors, The Asher & Wald Trust", whereas Mr Scheuer is the trustee of that trust. 36 The evidence also establishes a prima facie case that the proxy forms did not comply with the requirements of s 250B of the Act. Subsection (1) stipulates that, for an appointment of a proxy for a meeting of a company's members to be effective, the appointment must be received by the company at least 48 hours before the meeting. Subsection (3) stipulates that a company receives an appointment when it is received at (relevantly) the company's registered office or a place, fax number or electronic address specified for the purpose in the notice of meeting. In the present case, the notice of meetings given by Endless Solar and Harvard did not specify a place for the receipt of proxies. Rather, the purported proxy forms specified that the forms should be returned to: Speedpanel Australia Ltd, 555 Old Moorooduc Road Tuerong, Vic., 3915 Postal address: 555 Old Moorooduc Road Tuerong, Vic., 3915 37 There are two problems with that specification. First, the stated address is not the registered address of SPA, but appears to be the residential address of Mr Craig. There is thus prima facie non-compliance with s 250B of the Act. Second, the specification misleadingly suggests that the Tuerong address is the address of SPA, when that is not the case.

Conclusion 38 In conclusion, Mr Scheuer has satisfied me that there is a prima facie case that the notices of meeting and proxy forms issued by Endless Solar and Harvard were in contravention of the legal requirements set out above.

Balance of convenience 39 In determining the balance of convenience, the Court is required to balance the detriment that the applicant is likely to suffer if the interlocutory relief is not granted against the detriment the respondent is likely to suffer if the interlocutory relief is granted. 40 I accept the submission of Mr Scheuer that the balance of convenience is in favour of an injunction, as granting interlocutory relief carries the lower risk of injustice. 41 If the meeting were to proceed, there is a substantial risk that directors will be appointed in circumstances where not all of the members of SPA are given an opportunity to attend and vote at the meeting. I accept the submission of Mr Scheuer that there is a real risk that the directors proposed by Endless Solar and Harvard may commit SPA to acts that are irreversible. This risk is significant in circumstances where: (i) acts taken by persons acting as director are taken to be valid, even where there is a defect in the appointment of that director (see s 201M of the Act); and (ii) Endless Solar has indicated that it wishes to commence proceedings against SPA and to commence proceedings on behalf of SPA. 42 Conversely, Endless Solar did not establish any material prejudice that would be suffered by it were the injunction to be granted. As Mr Scheuer submitted, there is no commercial urgency to appoint directors as SPA has been deregistered since 2022 and does not have any current business operations. As set out earlier, in connection with the reinstatement of the registration of SPA, Judicial Registrar Luxton made orders that, if no directors were appointed to SPA by 31 March 2023, then by 14 April 2023 Endless Solar must file and serve an interlocutory process seeking orders that: (i) a meeting be called pursuant to s 249G of the Act (or some other basis); or (ii) SPA be wound up. The proposed injunction would not prevent such an application or order being made, and nor would it prevent the Court extending the date of 31 March (for the appointment of directors) or the date of 14 April (for the filing of an interlocutory process).

Conclusion 43 In conclusion, I am satisfied that there is a prima facie case that the notices of meeting and proxy forms issued by Endless Solar and Harvard were in contravention of a number of legal requirements as set out above, and that the balance of convenience favours the grant of an interlocutory injunction to restrain the meeting from going ahead. 44 It is apparent that there is a close connection between the Reinstatement Proceeding and the issues raised in this proceeding. As recognised by Judicial Registrar Luxton in the Reinstatement Proceeding, in circumstances where SPA does not have any current directors, its registration should only be continued if appropriate steps are taken to appoint new directors. By this proceeding, Mr Scheuer applies for orders to ensure that the members of SPA are properly identified so that they may receive proper notice of any meeting to consider the appointment of new directors (or any other resolution that they may wish to bring forward in that regard). 45 Given the close connection between the Reinstatement Proceeding and the issues raised in this proceeding, both proceedings should be case managed together. That will enable appropriate steps to be taken to identify the members of SPA and, if sought by Endless Solar, for the Court to supervise the convening of a meeting of members of SPA under s 249G of the Act. I certify that the preceding forty-five (45) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice O'Bryan.

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