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[2010] NSWCA 270
Court of Appeal (NSW)
2010-08-17
Hodgson JA, Young JA, Brereton J
Original judgment source is linked above.
INTRODUCTION 180 I have had the benefit of reading the reasons for judgment of Hodgson JA and Young JA. This makes it unnecessary for me to recount the facts or, generally speaking, the statutory provisions in question.
Section 249B 181 Although the Joint Stock Companies Registration Act 1844 (UK) permitted deed of settlement companies to achieve corporate status simply upon complete registration of their deeds of settlement, it took some time for the separateness of the legal personality of the registered company and the implications of that separateness to be unequivocally accepted. There were references to the registered company as "they" and as a "partnership" in the early cases and even in the Act of 1844 itself (see, for example s 25 para 12). The natural meaning of the word "company" as a plurality or group of persons was (and is) persistent. 182 One of the problems that inevitably besets a conferral of separate legal personality is that of identifying those human decisions, states of mind and acts that are to be attributed to the body corporate. In earlier times, the common seal provided the answer: whenever it appeared the corporation (chartered or statutory) had acted, and wherever it did not appear, the corporation had not acted. But exceptions had to be allowed to this "positive corporate seal rule" and this "negative corporate seal rule". (For the relationship between these rules and the contracts of the early registered joint stock company, see K E Lindgren, "History of Rule in Royal British Bank v Turquand" (1975) 2 Monash Law Review 13). As will be seen below, formalism is also the solution that the Australian Parliament has now adopted for the same kind of problem in a different guise - the one person company. 183 The first "modern" Companies Act was the Companies Act 1862 (UK) (the Limited Liability Act 1855 and the Joint Stock Companies Act 1856 had intervened but were shortlived). It was under the provisions of that Act that Salomon v Salomon & Co [1897] AC 22 was decided. In that famous case, Mr Salomon transferred his solvent business to a company which he had caused to be registered under that Act. Its paid up capital consisted of 20,007 shares of £1 each, of which Mr Salomon held 20,001, and his wife and five children one each of the remaining six. He could outvote them - easily. The sale price was satisfied by the issue to Mr Salomon of the 20,001 shares and of debentures secured by a floating charge. 184 Following bad times, the company was wound up. The debentures would exhaust all available funds and there would be insufficient funds left to pay unsecured creditors. 185 The House of Lords held that the question whether Mr Salomon enjoyed the benefit of a liability limited by shares depended only on whether the terms of the Act of 1862 were satisfied. Section 6 of that Act provided that seven or more persons might, by signing a memorandum of association and satisfying the requirements of the Act in respect of registration, form a company with or without limited liability. Their Lordships held that there was not to be read into the Act an implied requirement that the members must represent seven independent minds, and noted that it was even possible for all members but one to hold their shares on trust for that one. 186 Such notions, nowadays commonplace, had not found favour before the primary judge, Vaughan Williams J, or a unanimous Court of Appeal. 187 For a century, Salomon's case has been synonymous with the truism that the registered company is, in contemplation of law, a separate person from its members. But at least respect was paid to the idea that a company must have more than one member, even if the company was the "alter ego" of one of them. That was until, in Australia, the 1990s. 188 Before turning to the change then made, I digress to note the special concession that was made a little earlier in favour of a proprietary company's holding company. That concession was in the nature of an exception to the provision that if the number of members of a registered company fell below the statutory minimum and the company carried on business for more than six months while the number was so reduced, the persons who were members while it carried on business after that period and who knew of the insufficiency of members were severally liable for payment of the company's debts contracted during that time (the "carrying on business provision"). The company and those members were also guilty of an offence, but I will not refer to this aspect further. 189 In the Companies Act 1936 (NSW) the requirement of at least two or seven members, according to whether the company was registered as a proprietary company or not, was found in s 9, while the carrying on business provision was located in s 347. Section 347 did not, however, contain any kind of holding company exception. 190 That exception was introduced into Australian law by the Companies Act 1958 (Vic). Section 15(1)(h) of that Act made the minimum number of members two for a proprietary company and five for a public company, while s 31 contained the carrying on business provision, but that section expressed in parentheses an exception in favour of a proprietary company, the whole of whose issued shares were held by a holding company which was a public company (the public holding company exception). The following year Tasmania followed the Victorian example in s 30 of its Companies Act 1959. For the other States and the Territories, the public holding company exception had to await the enactment of the uniform Companies Act and Ordinances of 1961 and 1962. 191 The advent of this particular kind of one member subsidiary gave rise to the question how its decision or act was to be identified and distinguished from that of its holding company. The answer was provided in s 117(4) of the Victorian Act (and s 103(5) of the Tasmanian Act). That subsection provided that where a minute was signed by a representative of the holding company stating that any act, matter or thing, or any ordinary or special resolution required by the Act or by the subsidiary's memorandum or articles to be made, performed or passed by or at a general meeting of the subsidiary had been made, performed or passed, that act, matter, thing or resolution should, for all purposes, be deemed to have been duly made, performed or passed by or at a general meeting of the subsidiary (I will call this "the minute provision"). 192 The minute provision addressed a consequence of the limited acceptance of the possibility of a proprietary company carrying on business with only one member and was a forerunner of s 249B(1) of the Corporations Act 2001 (Cth) (henceforward, the Act) which is of present concern. 193 The Victorian and Tasmanian provisions were carried forward into the uniform Companies Act and Ordinances of 1961-1962, s 14(1) (minimum number of members), s 36 (the carrying on business provision, again incorporating the public holding company exception) and s 140(6) (the minute provision). 194 The provisions were then carried forward in the Companies Act 1981 (Cth) (the Companies Code) s33(1) (minimum number of members), s 82(1) (the carrying on business provision), s 82(2) (the holding company exception) and s 244(6) (the minute provision). No longer did the holding company have to be a public company, that is to say, a non-proprietary company. It sufficed that it was a company incorporated under the Code or any corresponding previous law of the jurisdiction or the corresponding law of a participating State or Territory - hence now "the holding company exception" omitting the word "public". 195 In 1989 the four provisions mentioned were carried through into the Corporations Law s 114 (minimum number of members), s 186(1) (the carrying on business provision), s 186(2) (the holding company exception) and s 249(7) (the minute provision). 196 In addition to the general requirement in s 114 that a proprietary company must have two or more members and that any other company must have five or more members, s 221 also required that a proprietary company have at least two directors and a public company at least three. 197 It is against the historical background recounted above that the amendments to the Corporations Law in the 1990s fall to be considered. 198 The First Corporate Law Simplification Act 1995 (Cth) (the FCLSA) provided for a more general acceptance of the one person proprietary company. 199 The FCLSA amended ss 114 and 186 (members) and 221 (directors) of the Corporations Law by substituting one for two members and one for two directors in the case of a proprietary company, leaving five members and three directors required in the case of a public company. Accordingly, it was made possible for corporate personality to be achieved from the outset with only one person as a proprietary company's shareholder and director. The single member might be a human being or, as previously, a company. 200 Many consequential amendments were made to the Corporations Law by the FCLSA. These are referred to by Rafal A Zakrzewski in "The Law Relating to Single Director and Single Shareholder Companies" (1999) 17 C & SLJ 156 at 159-160. For example, the effect of an amendment to s 249(1)(a) was that so far as the articles did not make other provision, a quorum was constituted by, in the case of a proprietary company with only one member, that member. 201 For present purposes, however, the most significant amendment was the introduction of s 255A which replaced the minute provision. Section 255A provided: (1) If a proprietary company has only one shareholder and the shareholder records the shareholder's decision to a particular effect, the recording of the decision counts as the passing by the shareholder of a resolution to that effect.
(2) If a proprietary company has only one director and the director records the director's decision to a particular effect, the recording of the decision counts as the passing by the director of a resolution to that effect.
(3) A record made for the purposes of subsection (1) or (2) also has effect as minutes of the passing of the resolution.
(4) If a proprietary company has only one director and the director records the director's declaration to a particular effect, the recording of the declaration counts as the making of a declaration to that effect made at a meeting of the company's directors.
(5) A declaration has effect as minutes that record the making of the declaration.
(6) A record made for the purposes of subsection (1), (2) or (4) must be made in writing.
The provision was for a written record of the sole shareholder's decision or sole director's decision or declaration and for the written record to have effect as a minute of the resolution or declaration. 202 Practical problems touching the one-person company became evident. In particular, provisions of the Corporations Law referring to a "meeting" of members or of directors could not be satisfied in the case of a one-member or one-director company, because a "meeting", according to that word's ordinary meaning, required the coming together of two or more persons: see Sharp v Dawes (1876) 2 QBD 26 at 29; In Re Sanitary Carbon Co [1877] WN 223 (but the ordinary meaning was held to have been displaced, and Sharp v Dawes and In Re Sanitary Carbon Co were distinguished, in East v Bennett Brothers Limited [1911] 1 Ch 163). This problem was the "one person cannot meet" problem. 203 There was a problem of a different kind associated with meeting requirements that existed even where a company had more than one member or more than one director so that a meeting was possible. This was that the requirement of a physical coming together was often inconvenient. Even a "meeting of minds" over the telephone was not always a satisfactory alternative. 204 Both problems were addressed by the Company Law Review Act 1998 (Cth) (CLRA) which made wide ranging amendments to the Corporations Law. 205 But first, it must be noted that s 114 was repealed and replaced with a provision that a company of any kind need have only one member. This meant that the "one person cannot meet" problem referred to above might now be encountered at the member level in the case of a public company as well as of a proprietary company, and at the directorial level in the case of a proprietary company. The second problem referred to above might be encountered in either kind of company and at either level, where there were in fact two or more members or directors. 206 Both problems were dealt with in a similar manner in new ss 248A and 248B (directors) and new ss 249A and 249B (members). Those four sections were, and as sections of the Act still are, as follows: 248A Circulating resolutions of companies with more than 1 director (replaceable rule see section 135) Resolutions (1) The directors of a company may pass a resolution without a directors' meeting being held if all the directors entitled to vote on the resolution sign a document containing a statement that they are in favour of the resolution set out in the document. Copies (2) Separate copies of a document may be used for signing by directors if the wording of the resolution and statement is identical in each copy. When the resolution is passed (3) The resolution is passed when the last director signs. Note: Passage of a resolution under this section must be recorded in the company's minute books (see section 251A ).
248B Resolutions and declarations of 1 director proprietary companies Resolutions (1) The director of a proprietary company that has only 1 director may pass a resolution by recording it and signing the record. Declarations (2) The director of a proprietary company that has only 1 director may make a declaration by recording it and signing the record. Recording and signing the declaration satisfies any requirement in this Act that the declaration be made at a directors' meeting. Note 1: For directors' declarations, see sections 295 and 494. Note 2: Passage of a resolution or the making of a declaration under this section must be recorded in the company's minute books (see section 251A). 249A Circulating resolutions of proprietary companies with more than 1 member
(1) This section applies to resolutions of the members of proprietary companies that this Act or, if a company has a constitution, the company's constitution requires or permits to be passed at a general meeting. It does not apply to a resolution under section 329 to remove an auditor. (2) A company may pass a resolution without a general meeting being held if all the members entitled to vote on the resolution sign a document containing a statement that they are in favour of the resolution set out in the document. Each member of a joint membership must sign. (3) Separate copies of a document may be used for signing by members if the wording of the resolution and statement is identical in each copy. (4) The resolution is passed when the last member signs. (5) A company that passes a resolution under this section without holding a meeting satisfies any requirement in this Act: (a) to give members information or a document relating to the resolution - by giving members that information or document with the document to be signed; and (b) to lodge with ASIC a copy of a notice of meeting to consider the resolution - by lodging a copy of the document to be signed by members; and (c) to lodge a copy of a document that accompanies a notice of meeting to consider the resolution - by lodging a copy of the information or documents referred to in paragraph (a). (6) The passage of the resolution satisfies any requirement in this Act, or a company's constitution (if any), that the resolution be passed at a general meeting. (7) This section does not affect any rule of law relating to the assent of members not given at a general meeting.
Note 1: A body corporate representative may sign a circulating resolution (see section 250D). Note 2: Passage of a resolution under this section must be recorded in the company's minute books (see section 251A).
(1) A company that has only 1 member may pass a resolution by the member recording it and signing the record. (2) If this Act requires information or a document relating to the resolution to be lodged with ASIC, that requirement is satisfied by lodging the information or document with the resolution that is passed.
Note 1: A body corporate representative may sign such a resolution (see section 250D). Note 2: Passage of a resolution under this section must be recorded in the company's minute books (see section 251A). 207 A new s 248D provided that a directors' meeting might be called or held using any technology consented to by all the directors. Subsections (1), (2) and (3) of s 251A (referred to in the notes to provisions set out above) provided as follows: 251A Minutes (1) A company must keep minute books in which it records within 1 month: (a) proceedings and resolutions of meetings of the company's members; and (b) proceedings and resolutions of directors' meetings (including meetings of a committee of directors); and (c) resolutions passed by members without a meeting; and (d) resolutions passed by directors without a meeting; and (e) if the company is a proprietary company with only 1 director - the making of declarations by the director. Note: For resolutions and declarations without meetings, see sections 248A, 248B, 249A and 249B. (2) The company must ensure that minutes of a meeting are signed within a reasonable time after the meeting by 1 of the following: (a) the chair of the meeting; (b) the chair of the next meeting. (3) The company must ensure that minutes of the passing of a resolution without a meeting are signed by a director within a reasonable time after the resolution is passed.
It will be noted that ss 248A, 248B, 249A and 249B are concerned with the passing of resolutions and that although the means prescribed is writing, the writing is not a deemed minute: the passing of the resolution and the subsequent minuting of it under s 251A are distinct steps (contrast s 255A of the Corporation Law set out [201] above). 208 Section 249B is to be understood in the light of s 249A (and s 248B in the light of s 248A, but I will not continue to refer to the directorial provisions) and of the legislative history recounted above. The positive corporate seal rule and the negative corporate seal rule, the minute provision and the former s 255A had all resorted to formalism of various kinds to identify what was to count as a corporate act or resolution, in the last two cases in the one-member or one-director context. So does s 249B. 209 Although s 249A speaks of "the resolution set out in the document" whereas s 249B does not, this makes no difference in my view. Under both sections, "the resolution" itself must be documented. Under s 249A, which addresses the second problem referred to earlier, the members entitled to vote must sign a document or separate copies of a document stating that they are in favour of the resolution set out in the document. 210 In the case of the one member company the second class of problem referred to earlier is irrelevant, because a meeting, whether a physical or mental, is impossible. A solution in terms of the one member being "in favour of" the resolution would not be quite appropriate to the circumstances, and it would be tautologous to refer to the member "recording a resolution set out in a document". Admittedly, it would have been possible for s 249B to say "by the member signing the document setting out the resolution" but I do not think the legislature's choice of the concept of the member's recording the resolution and signing the record bears a different meaning. Rather, the legislature carried forward the concept of a statement that a resolution had been passed (the minute provision) or the "recording" of a decision (the former s 255A). If anything, s 249B's substitution of the word "resolution" for "decision" tends to make it clearer that the terms of the resolution must appear in the record that is made. 211 Article 33 of the articles of association of Londish Nominees Queensland Pty Ltd (LNQ) and of Valofo Pty Ltd (Valofo) each provided: "The Company may be resolution remove any Director and may by resolution appoint another person in his stead."
Similarly, by a replaceable rule, s 203C of the Act provides: A proprietary company: (a) may by resolution remove a director from office; and
(b) may by resolution appoint another person as a director instead.
and s 201G of the Act provides: A company may appoint a person as a director by resolution passed in general meeting.
Under both Article 33 and the sections the removal and appointment are by "the company" by the procedure of the passing an ordinary resolution. The requirement of the passing of the resolution serves certain purposes including that of marking the time of the removal or appointment (when the resolution is passed) and the terms of the removal, such as whether the removal is to have effect immediately or on and from some future date. 212 Vesudi Investments Pty Ltd (Vesudi) did not record and sign a record of a resolution by either preparing or giving the notice dated 25 February 2009 of the removal of Peter George Londish (Peter) as a director and secretary of LNQ and the appointment of Sidney Londish (Sidney) as a director of that company. Rather, the notice assumed a removal and appointment, the date or dates and terms of which are not revealed. 213 The same reasoning and conclusion apply in relation to the notice of 26 February 2009 given by LNQ in respect of Valofo. 214 Section 249B performs an important function. It insists on a distinction between the sole member of a company (who may, of course, be a natural person as distinct from a holding company) deciding upon a course of action, and a resolution of the company that is recorded by the sole member, which record is signed by that member. A degree of formality has always been important in company law: it provides the means by which human action that is to be attributed to the fictional person can be identified and distinguished from that which is not. It is true that the related jurisprudential history has been one of a progressive relaxation of the insistence on form under the exigencies of the expansion of commerce and the ubiquitousness of the registered company. Nevertheless, there must remain some means of identifying corporate decision-making and s 249B(1) provides that means in the context of the peculiar problems presented by the one-member company.
Article 54 of the articles of association of LNQ and of Valofo 215 The terms of article 54 are set out by Hodgson JA at [29]. 216 Article 54 is potentially relevant to the appointment of Sidney as a director of LNQ and as a director of Valofo, not the removal of Peter as a director of those companies. 217 As Hodgson JA and Young JA point out, the authorities recognise a distinction between, relevantly, purported but defective appointments and the absence of any appointment at all. Some of the authorise are referred to by Young JA at [82] - [83]. 218 There is no evidence of a purported appointment of Sidney. The only evidence to which the Court was referred consisted of the two notices of appointment - one relating to LNQ and the other relating to Valofo. 219 For the reasons given above in relation to s 249B, while the notices suggest that a removal and an appointment have been decided upon, they are not evidence of the passing of resolutions by LNQ and Valofo - for all that is known, there were no corporate resolutions of those companies, only decisions by the givers of the notices, Vesudi and LNQ, to give the notices. 220 So far as the evidence reveals, therefore, the case is one of non-appointment to which article 54 has nothing to say.
Section 201M 221 Section 201M is set out by Hodgson JA at [4]. 222 In my opinion subs (1) of s 201M, like article 54, presupposes, relevantly, a purported appointment as distinct from a non-appointment. I see no relevant distinction between article 54's reference to "some defect in the appointment" of a person acting as a director and s 201M's reference to a director's "appointment" being "invalid". The word "director" in subs (1) of s 201M clearly refers to a "person acting in the position of a director" - see the terms of subs (1) themselves and para (b)(i) of the definition of "director" in s 9 of the Act. 223 Re Colorbus Pty Ltd (in liq) (2004) 51 ACSR 677 is distinguishable: there was a purported appointment of Mr Kintsch but it was invalid because he did not ordinarily reside in Australia as required by s 201A of the Act. 224 For the reasons given above in relation to article 54, so far as the evidence reveals, there was no purported but invalid appointment of Sidney as a director of either LNQ or Valofo. 225 I do not find it necessary to discuss subs (2) of s 201M or ss 128 - 130 (Part 2B.2) of the Act or the rule in Royal British Bank v Turquand (1856) 6 El &Bl 327 (119 ER 886).
Section 447A 226 Section 447A(1) of the Act provides: The court may make such order as it thinks appropriate about how this Part of the Act is to operate in relation to a particular company. 227 The "Part" referred to in this provision is Part 5.3A. The company in question is Valofo which purported to appoint the appellants as administrators of it under s 436A which is within Part 5.3A. 228 For the reasons given by Young JA, it is not necessary to consider the availability of the power given by s 447A.
Section 1322 229 Section 447C of the Act provides: (1) If there is doubt, on a specific ground, about whether a purported appointment of a person as administrator of a company, or of a deed of company arrangement, is valid, the person, the company or any of the company's creditors may apply to the Court for an order under subsection (2). (2) On an application, the Court may make an order declaring whether or not the purported appointment was valid on the ground specified in the application or on some other ground. 230 This section was not raised before the primary Judge or on the appeal. While the condition of jurisdiction set out in subs (1) is satisfied in the present case, exercise of the discretion to make a declaration under subs (2) would require a determination "whether or not the purported appointment was valid". The determination in the circumstances here would be simply that it was not valid. 231 Section 1322, however, gives the Court a remedial jurisdiction. 232 The relevant ground of appeal refers to s 1322(4)(a). The terms of s 1322 are set out by Hodgson JA at [4]. 233 The expression in 1322(4)(a) "any act, matter or thing purporting to have been done, or any proceeding purporting to have been instituted or undertaken under [the] Act or in relation to a corporation" is of the widest kind. It embraces the purported appointment of the appellants as administrators of Valofo. 234 As Young JA observes (at [161] - 162]), the expression in s 1322(4)(a) "by reason of contravention of a provision of this Act or a provision of the constitution of a corporation" (my emphasis) has been liberally construed, and the word "contravention" in the provision has not been confined to its orthodox meaning of "infringement". 235 The appointment by Valofo of the appellants as administrators on 16 July 2009 was invalid because:
• Valofo had not removed Peter and appointed Sidney as a director of Valofo by passing resolutions in conformity with s 249B before the purported instrument of appointment was executed and a resolution of the directors of Valofo was passed, although the soi-disant directors, Sidney and Mr Bowman, apparently presumed that there was an effective removal of Peter and appointment of Sidney upon or before the giving of the notice by LNQ on 26 February 2009;
• LNQ had not removed Peter and appointed Sidney as a director of LNQ by passing resolutions in conformity with s 249B, although the soi-disant directors, Sidney and Mr Bowman, apparently presumed that there was an effective removal of Peter and appointment of Sidney upon or before the giving of the notice by Vesudi on 25 February 2009. 236 In my opinion these reasons for the invalidity of the appointment by Valofo of the appellants as its administrators fall within the expression "contravention of the provision of the Act", the provision of the Act being s 249B. 237 I am of the view that it is "just and equitable" that an order be made under s 1322(4)(a) (see para (a)(iii) of s 1322(6)) and that "no substantial injustice has been or is likely to be caused to [Peter]" (see s 1322(6)(c)). Each of LNQ and Valofo was entitled to remove Peter and to appoint Sidney in his stead, and could have done so if the correct procedure (under s 249B) had been followed. Peter does not and could not challenge this proposition.
CONCLUSION 238 I agree with Young JA's observations in relation to the granting of leave to appeal at [51] - [66] and [171] - [172]; in relation to the setting aside of the summonses for examination and orders for production at [173]; in relation to costs at [175] - [177]; and as to the orders to be made at [178]. I also agree with Hodgson JA that the matter should not be remitted to the Equity Division for the reasons given by his Honour at [36].
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Sheahan
Londish
CITATION: Sheahan v Londish [2010] NSWCA 270
Albert Gardens (Manly) Pty Ltd v Mercantile Credits Ltd [1973] HCA 60; 131 CLR 60 Australasian Memory Pty Ltd v Brien [2000] HCA 30; 200 CLR 270 Australian Capital Television Pty Ltd v Minister for Transport & Communication (1989) 86 ALR 119 Barron v Potter [1914] 1 Ch 895 Brick & Pipe Industries Ltd v Occidental Life Nominees Pty Ltd (1990) 3 ACSR 649; (1991) 6 ACSR 464 Calabretta v Redpen Developments Pty Ltd (2010) 183 FCR 47 Clifton v Mount Morgan Ltd (1940) 40 SR (NSW) 31 Coulton v Holcombe [1986] HCA 33; 162 CLR 1 Da Costa v Cockburn Salvage & Trading Pty Ltd [1970] HCA 43; 124 CLR 192 Dawson v African Consolidated Land and Trading Company [1898] 1 Ch 6 Deputy Commissioner of Taxation v Portinex Pty Ltd (2000) 156 FLR 453 Dominion Mining NL v Hill (No 1) [1971] ACLC 40-021 East v Bennett Brothers Limited [1911] 1 Ch 163 Grant v John Grant & Sons Pty Ltd [1950 HCA 54; 82 CLR 1 H L Bolton (Engineering) Co Ltd v T J Graham & Sons Ltd [1957] 1 QB 159 Hughes v N M Superannuation Pty Ltd (1993) 29 NSWLR 653 In re Sanitary Carbon Co [1877] WN 223 Johnson Tiles Pty Ltd v Esso Australia Ltd (2000) 104 FCR 564 CASES CITED: Jordan v Avram (1997) 25 ACSR 153 Kazar v Duus (1998) 29 ACSR 321 Londish v Sheahan [2010] NSWSC 337 Morris v Kanssen [1946] AC 459 NRMA Ltd v Gould (1995) 18 ACSR 290 O'Brien v Komesaroff [1982] HCA 33; 150 CLR 310 Re Centennial Coal Co Ltd (2006) 56 ACSR 698 Re Colorbus Pty Ltd (2004) 51 ACSR 677 Re Continental Pacific [2002] NSWSC 789 Re Duomatic Ltd [1969] 2 Ch 365 Re Freehouse Pty Ltd (1997) 26 ACSR 662 Re MLC Ltd (2006) 60 ACSR 187 Royal British Bank v Turquand (1856) 6 El & Blk 327; 119 ER 886 Salomon v Salomon & Co [1897] AC 22 Sharp v Dawes (1876) 2 QBD 26 Story v Advance Bank Australia Ltd (1993) 31 NSWLR 722 Toole v Flexihire Pty Ltd (1991) 6 ACSR 455 University of Wollongong v Metwally (No 2) [1985] HCA 28; 59 ALJR 481 Winpar Holdings Ltd v Goldfields Kalgoorlie Ltd (2001) 40 ACSR 221
LOWER COURT MEDIUM NEUTRAL CITATION: Londish v Sheahan & Lock in Re Valofo Pty Ltd [2009] NSWSC 1175
The Court held, granting leave to appeal and allowing the appeal: 1. As to leave: Hodgson JA, Young JA (Lindgren AJA, agreeing): where other parties squarely raised the matters ventilated on appeal at trial, the matters were in issue by the conduct of the parties and need not have been personally argued by the applicants. Despite the weighty matters telling against granting leave, the course of justice suited the granting of leave to appeal where the applicant raised some significant legal questions; there was a significant doubt that the decision below was wrong; and there was arguably prejudice caused by the decision below to the applicants. Johnson Tiles Pty Ltd v Esso Australia Ltd (2000) 104 FCR 564, applied; O'Brien v Komesaroff [1982] HCA 33; 150 CLR 310, applied; University of Wollongong v Metwally (No 2) [1985] HCA 28; 59 ALJR 481; Coulton v Holcombe [1986] HCA 33; 162 CLR 1, distinguished.
Hodgson JA (dissenting): The notices to LNQ and to Valofo were effective as resolutions under s 249B. There is no effective resolution of the company under s 249B until there is a resolution or decision of the sole shareholder, recorded and signed by that shareholder. An intention that there be something taking effect as a resolution passed by the company may be required, however, to distinguish between the intentions of LNQ itself and its sole shareholder would be over-technical and frustrate the clear intention of a sole shareholder having the power to achieve the result intended. The clear decision of Peter and Mr Bowman to effect the changes specified in the notice was a relevant resolution of Vesudi. The notice as the sole record of the resolution was signed, and in the context of its form and the actions taken in respect of it plainly manifested the intention that the notice would effect changes to the board of LNQ, and thus amounted to a record made by Vesudi of the decision. The trial judge erred inferring that the notice was an act of Vesudi on the basis of the mistaken belief of the existence in LNQ's articles of an equivalent of Aritcle 62. The mistake was not put; LNQ plainly had no such article; and unlike the Article 62 notice, the relevant notice referred to Vesudi holding all shares in LNQ. The intention that was objectively manifest by the decision and the recording of it was that the notice effect changes to the board of LNQ in accordance with LNQ's Articles and the applicable law. Clifton v Mount Morgan Ltd (1940) 40 SR (NSW) 31; Dominion Mining NL v Hill (No 1) [1971] ACLC 40-021, referred to.
Subsequent events 19 On 16 October 2009, Sidney Londish was appointed director of Valofo in place of Peter Londish; and the validity of that appointment has not been challenged. On 26 November 2009 Sidney Londish and David Bowman as sole directors of Valofo resolved to place it in voluntary administration, and again appointed the administrators to be Valofo's administrators. 20 On 10 December 2009, Peter Londish commenced proceedings to seek a determination of the administration or removal of the administrators, on the grounds that Valofo was not insolvent at the time of the resolution, that the resolution was for an improper purpose and that the administrators were biased in favour of Sidney Londish and David Bowman. 21 On 28 April 2010 Palmer J gave his decision dismissing these proceedings: Londish v Sheahan [2010] NSWSC 337. He noted authority to the effect that if a board has passed a resolution under s 436A, but the opinion as to insolvency is not held or not held in good faith, then the resolution is invalid: Kazar v Duus (1998) 29 ACSR 321 at 333 - 334. However, Palmer J found that Valofo was insolvent as at 26 November 2009, by reason of a debt of over $25,000 which the subject of a statutory demand served on 30 October 2009. He went on to hold that the appointment of the administrators was not for an improper purpose.
Conclusion 35 I would grant leave to appeal, allow the appeal, and set aside the orders below. 36 On the question whether the matter should be remitted, so that Peter Londish's case on improper purpose can be determined, I have reached the view that this should not happen, for these reasons: (1) Peter Londish accepted the primary judge's invitation to have the matter decided on the invalidity ground only. (2) Improper purpose would have been relevant to the primary judge's discretion to validate under s 1322(4), which was litigated. (3) Palmer J has rejected improper purpose in relation to the appointment of the same administrators by the same directors on 26 November 2009. 37 Although the circumstances could have changed between 16 July 2009 and 26 November 2009, the only change that could be suggested as appearing from the evidence concerns the insolvency of Valofo which, as at 26 November 2009, was established by a debt in a statutory demand dated 30 October 2009. In circumstances where Valofo has not been actively trading, it seems highly unlikely that this debt arose suddenly and could not have been anticipated as at 16 July 2009; and in fact there was no evidence before us suggesting that either the position as regards insolvency or anything else going to improper purpose changed between 16 July 2009 and 26 November 2009. 38 Having regard to the grounds on which I would uphold the appeal, I am of the tentative view that the administrators should have their costs at first instance. 39 YOUNG JA: We are hearing a concurrent application for leave to appeal, and, if leave is granted, the hearing of the appeal in respect of a judgment given by Brereton J in the Equity Division of this Court. 40 The application for leave was filed out of time. A motion was filed to extend the time. On this motion the applicants put that originally it was considered that there was an appeal as of right. A notice of intention to appeal was filed within a fortnight of the judgment below and a notice of appeal within three months thereafter. In April, it was realized that leave might be necessary and the present motion was filed. 41 It was faintly put before us that there was an appeal as of right, but, amongst other things, there was no evidence to support the submission. Leave was sought on the basis that the present case involved interpretation of a key provision of the Corporations Act 2001 (Cth) and that, in the circumstances outlined above, the respondents could not realistically claim any prejudice. 42 The application to extend time was opposed, but only on grounds that leave to appeal should be refused in any event. No special prejudice was claimed. 43 We then proceeded with the application on the basis that determination of the leave application would determine the motion as well. 44 The basic point in the case is simple. There were three companies in a group Vesudi Investments Pty Ltd (which I will call "X") which owned all the shares in Londish Nominees Queensland Pty Ltd (which I will call "Y") which owned all the shares in Valofo Pty Ltd ("Z"), the company which is the focus of these proceedings. The first respondent, Peter Londish was, prior to the events about to be recounted, a director of all three. 45 The shareholders in X validly resolved to remove Peter Londish as a director of X and replace him with Sidney Londish. X, as the sole shareholder of Y, then purported to remove Peter Londish as a director of Y and Y then purported to remove him as a director of Z in each case replacing him with Sidney Londish. 46 Sidney Londish and David Bowman his co-director of Z then resolved to put Z into administration and appointed the present applicants administrators. 47 Brereton J held that that appointment was invalid. 48 Subsequently the applicants were reappointed administrators and, later still, Z was put into liquidation with the applicants as liquidators. 49 The present applicants took a mere supporting role before the primary judge, though they were named there as the first respondents. The principal combatants were Peter Londish as applicant and the second and third respondents, namely David Bowman and Sidney Londish. 50 It must be pointed out that the decision below was made during the course of a heavy corporations duty list. Although the primary judge did not have the same detailed argument as we have had, he addressed the key issues and produced an admirable ex tempore judgment. 51 The first reason why the application for leave and the appeal is resisted is that Peter Londish says that as the applicants did not make any contest in the court below, they cannot complain on appeal. 52 It is true that, whilst this court conducts a rehearing, it is a rehearing on the issues that were considered by the primary judge; see eg Da Costa v Cockburn Salvage & Trading Pty Ltd [1970] HCA 43; 124 CLR 192, 208. However, in the present case, whilst the applicants did not actively press those issues below, others did, so that the matter which the applicants desire to ventilate was squarely raised below. 53 On this application and appeal, Mr J E Marshall SC and Mr D R Sulan of counsel appeared for the applicants, Mr S Burchett of counsel appeared for Peter Londish and Mr P C Evans (solicitor) appeared for the other respondents. 54 Mr Burchett cited a series of cases which he submitted showed that the applicants could not raise the matters they had not personally contested below: University of Wollongong v Metwally (No 2) [1985] HCA 28; 59 ALJR 481, 483; Coulton v Holcombe [1986] HCA 33; 162 CLR 1, 8. 55 However, cases like O'Brien v Komesaroff [1982] HCA 33; 150 CLR 310, 319 seem to me to make it clear that it is sufficient that the point now desired to be ventilated was an issue by the conduct of the parties at the trial. I do not consider that the matter need necessarily have been argued by the present applicants. 56 Next Mr Burchett says that leave should not be granted because the result of the appeal does not affect the company as it is now in liquidation and the applicants are its liquidators. He submits that the only consequence of the appeal being allowed will be that the applicants will be relieved of the order of costs against them in respect of which they have an indemnity from a litigation funder. 57 Furthermore, he puts, the applicants have accepted re-appointment as administrators and, subsequently liquidators, which could only have been made if their original appointment was invalid. 58 Again, as the decision below was virtually on a preliminary point, allowing the appeal will only have the consequence that the other aspect of the case will have to be heard which, in the circumstances, will be a complete waste of resources. 59 Mr Burchett quotes from the judgment of the Full Federal Court in Johnson Tiles Pty Ltd v Esso Australia Ltd (2000) 104 FCR 564, 583 at [42], where French J (as his Honour then was) said that policy with respect to appeals included the fact that the time and resources of the appeal court were not to be wasted by proceedings which did not determine the rights of the parties. 60 That same judgment at 584 [44] contains a reminder that, in granting leave to appeal, the appellate court looks principally to two matters: (1) is there sufficient doubt about the decision below to merit a review; and (2) would substantial injustice result if leave were refused? 61 I believe that these are weighty matters which tell against leave being given, but are not conclusive. To them could be added the possibility that, if the appeal only succeeds because of an order made under ss 1322 or 447A of the Corporations Act 2001 (Cth) no different order for costs might be made. 62 Mr Marshall says that there is greater prejudice caused to the applicants than that outlined by Mr Burchett. The applicants incurred costs and expenses between the purported appointment of administrators on 16 July 2009 and the declaration of invalidity made on 5 November 2009 and there may possibly be liability for acts done by them in that period. 63 However, there is no evidence as to the extent of any financial loss in this period. At least so far as the expenses are fees, they would presumably be covered by the indemnity given to the applicants. 64 Mr Marshall further says that the matters relied on by the respondents are outweighed by the public importance in having an appellate decision on key sections of the Corporations Act. 65 With respect, I consider that this submission exaggerates the importance of the case. However, some of the points raised by the applicants are significant and there is significant argument that the decision below could be wrong and there is arguably prejudice caused by the decision beyond that recognised by Mr Burchett. 66 It seems to me that in this borderline situation, the course which best suits the cause of justice is to grant leave to appeal. 67 Turning now to the merits, the points that the applicants wish to ventilate are:
(c) Sections 1322 and 447A of the Corporations Act 139 The argument in respect of s 1322 is split into considerations of sub-section (2) and considerations of sub-section (4). 140 There was no suggestion below that sub-section (2) could apply to this case and its possible application was abandoned by then counsel for the second and third respondents. 141 As there is no suggestion that there would have been any submissions on substantial prejudice had the point been raised below, there is no reason for the point not to be considered on appeal. 142 Sub-section (2) provides that "A proceeding under this Act is not invalidated by any procedural irregularity…". 143 The questions arise here as to whether the present case involves a "proceeding"' and a "procedural" irregularity. 144 So far as "proceeding" is concerned, it is a common use of the word to describe what happens in parliament or at a meeting as the proceedings. I can see no reason to exclude the case where an individual by solemnly making a resolution by document purports to produce the same effect as a resolution at a meeting. This view is reinforced by the decision of Gillard J in Re Freehouse Pty Ltd (1997) 26 ACSR 662. 145 Is it then a "procedural irregularity"? 146 The primary judge held in his treatment of the application under s1322(4) that the removal of a director and his replacement by another director cannot be passed off as something essentially of a procedural nature. It is manifestly substantive. 147 This view is substantiated by the authorities; see eg Re Continental Pacific [2002] NSWSC 789 at [14] and Colorbus at p 682. 148 One must be careful as to what validation is being sought by the applicants. If it is to validate the appointments of themselves or of Mr Sidney Londish as a director, what the primary judge says may well be determinative. However, if the order sought is to validate the "notices" so that they operate as resolutions, that may be procedural, though it would have the flow on effect of making the appointment of the administrators effective. 149 The White Appeal Book does not contain any copy of the originating process. However, at T20, then counsel for the second and third respondents said that he was seeking an order under s 447A or s1322 "to validate the appointment of the administrator insofar as it is called into question by reason of what … may be a defective resolution." 150 At T22, the primary judge asked counsel what was the order he sought under s 1322(4)(a) and the reply was, "That the notice that was signed on 26 February was effective as a resolution under s 249B of the Corporations Act to remove Peter Londish as a director of Volofo." Counsel endeavoured to convey (perhaps unsuccessfully) that he was using the word "notice" as meaning a document that described itself as a notice, rather than conceding it was a notice. 151 The primary judge queried whether that matter fell within the sub-section as the notice appeared to be a mere act of a shareholder giving notification of a change, not a resolution. The discussion then went on to another matter. 152 I have some doubt, with respect, as to whether the proposition that counsel intended to put was actually conveyed to the mind of the primary judge. As I understand the submission it was that, although intituled a "notice" by a shareholder, it was intended to be a resolution made by the shareholder as an act of the company. It has not taken effect because of a defect of form (being intituled notice instead of resolution) and that defect may be the subject of a validation order under sub-section (4) or be declared valid under sub-section (2). 153 The culture in this State has been when there is substantial doubt about the validity of a corporate action to make an order under s1322(4) rather than a declaration of non invalidity under sub-section (2); see eg Winpar Holdings Ltd v Goldfields Kalgoorlie Ltd (2001) 40 ACSR 221, 238. 154 Sub-section (4)(a) provides that the court is empowered to declare that any act, matter or thing purporting to have been done…under the Act or in relation to a corporation is not invalid by reason of any contravention of a provision of the Act or a provision of the constitution of a corporation. 155 Sub-section (6) then provides that the court must not make such an order unless it is satisfied of one of the three matters specified in s 1322(6)(a). 156 In the Re Continental Pacific case, Barrett J at [12] said that a claim under s 1322(4)(a) must be considered in the light of the clear reality of the intention of the relevant shareholders and directors to effect a purpose which was within their mandate. The decision gives the impression that, where such a scenario exists, it would usually be just and equitable to make the validating order and thus fulfil the words of s 1322(6)(a)(iii). 157 Before the primary judge, the appointors of the administrators relied on s 1322(4)(a) to seek an order declaring, in effect, that the purported removal of Mr Peter Londish and his replacement with Mr Sidney Londish as a director of Z was not invalid by reason of the circumstances of this case. 158 The primary judge rejected this submission. He said that there were at least obstacles to this course: "First, it was said that the relevant "act … purporting to have been done" for the purposes of s 1322(4)(a) was the notice; but the notice was not an act, matter or thing or proceeding "under this Act" or in relation to a corporation in contravention of a provision of the Corporations Act or the corporate constitution; it was something entirely unauthorised and uncontemplated by the Articles or the Act. It was an act which proceeded with irrelevance to the Constitution, the Act, and without any effect." 159 The primary judge's second reason, one he said was more significant, was that s 1322(6) provides that the court must not make an order under s 1322(4)(a), unless it is satisfied that the act, matter or thing or the proceeding is essentially of a procedural nature. He ruled that the removal of a director and his replacement by another director "cannot be passed off as something essentially of a procedural nature. It is manifestly substantive." 160 However, s 1322(6) gives three alternative gateways and, if it is just and equitable to make the order, it does not matter that it may be other than of a procedural nature. Although there was some doubt about this proposition for a while, by the time Re MLC Ltd (2006) 60 ACSR 187 was decided, it had become the standard construction, see p 189. 161 To my mind, the barrier to making an order until s 1322(4)(a) is whether the words "contravention of a provision of this Act" are satisfied when the company does not infringe the Act, but merely fails to take advantage of a provision of the Act. 162 I considered this problem in NRMA Ltd v Gould (1995) 18 ACSR 290, 293 and concluded that the word "contravention" should be given a wide meaning. This was adopted in Victoria by Gillard J in Jordan v Avram (1997) 25 ASCR 153 and by Barrett J in Re Centennial Coal Co Ltd (2006) 56 ACSR 698. The extended meaning would cover the instant case. 163 Thus, in my view, it would be proper to make a validating order under s 1322(4)(a). I thus need not further consider s 1322(2). 164 Section 447A provides that the court may make such order as it thinks appropriate about how Pt 5.3A is to operate in relation to a particular company. 165 The primary judge had no doubt that that section is of potentially wide application, but said that what was ultimately in question in the case was not so much the appointment of the administrators, but the purported removal of Peter Londish as a director and his replacement with Mr Sidney Londish. Section 447A would not authorise an order which validated that act, that not being anything to do with how Pt 5.3A is to operate. 166 The primary judge found that even if Pt 5.3A authorises an act that the Part operate in respect of Z as if the administrators had been duly appointed, he did not think it would be appropriate, as a matter of discretion, to invoke s 447A in those circumstances. 167 It was argued before us that the High Court's decision in Australasian Memory Pty Ltd v Brien [2000] HCA 30; 200 CLR 270 set at naught many of the previous decisions that had limited the operation of s 447A and that that section has wide operation. 168 That proposition may be correct, but it would appear to me that as primarily the section is to govern the ongoing administration, where the administration has come to an end, there is a difficulty in applying s 447A as Barrett J noted in Re Continental Pacific at [19]. However, I am not unmindful that s 447A has been applied in such circumstances by some first instance judges; see eg Deputy Commissioner of Taxation v Portinex Pty Ltd (2000) 156 FLR 453 and Calabretta v Redpen Developments Pty Ltd (2010) 183 FCR 47. 169 As the matter is covered by s 1322(4)(a), there is no need to resort to s 447A.
[1985] HCA 28
(1989) 86 ALR 119
(2010) 183 FCR 47
(2000) 156 FLR 453
(1993) 29 NSWLR 653
(2000) 104 FCR 564
(1993) 31 NSWLR 722
(1950) 82 CLR 1
(1973) 131 CLR 60
[1986] HCA 33