(3) If an order made under this section repeals or modifies a company's constitution, or requires the company to adopt a constitution, the company does not have the power under section 136 to change or repeal the constitution if that change or repeal would be inconsistent with the provisions of the order, unless:
(a) the order states that the company does have the power to make such a change or repeal; or
(b) the company first obtains the leave of the Court."
56 In approaching this part of the plaintiffs' case, I must go immediately to the course of litigation that culminated in the decision in Wayde v New South Wales Rugby League Ltd (1985) 180 CLR 459. The High Court there dismissed an appeal from the New South Wales Court of Appeal (New South Wales Rugby League Ltd v Wayde (1985) 1 NSWLR 86) which had allowed an appeal against a decision of Hodgson J that there should be an order under the then equivalent of s.233 restraining the New South Wales Rugby League from acting upon and implementing a decision to reduce the number of teams in its first grade competition and to exclude the Western Suburbs club (Wayde v New South Wales Rugby League Ltd (1984) 9 ACLR 349). There, as here, the power to select member clubs to participate in competitions was vested in the board of directors. That the proceedings were framed by reference to the equivalents of ss.232 and 233 represented recognition of the reality in company law that directors' duties are not owed to individual members but to the company itself.
57 In Wayde, as in the present case, the complainant club was a member of the company that was the governing body for the sport. There, as here, the constitution of the company set out objects and powers which included the fostering and control of the relevant sport in New South Wales and determination of which member clubs should be entitled to enter teams in the relevant competition. The provisions of the constitution in those respects are strikingly similar to those applying in this case (see paragraphs [36] to [40] above). There was also a provision in generally the same terms as article 44 of the constitution of Soccer NSW (see paragraph [40] above). In Wayde, it was conceded by the excluded member that the relevant decision of the board had been made in good faith, also that there had been no failure to take relevant considerations into account and no attention paid to irrelevant considerations. The plaintiffs in the case before me make no corresponding concessions. The contention of the excluded club in Wayde (at p.467) was that:
"the exclusion of a viable club, such exclusion not being required to render the competition workable, would promote 'purposes foreign to the company's operations, affairs and organizations', adopting the meaning ascribed to the phrase 'benefit of the company as a whole' by Dixon J in Peters' American Delicacy Co Ltd v Heath (1939) 61 CLR 457, at p.512."
58 The majority (Mason ACJ, Wilson J, Deane J and Dawson J) said (at pp.467-8):
"The answer to this contention is that no amount of sympathy for Wests can obscure the fact that the League was expressly constituted to promote the best interests of the sport and empowered to determine which clubs should be entitled to participate in competitions conducted by it. It was upon this basis that the clubs, including Wests, chose to incorporate. Indeed, the 1984 correspondence between Wests and the League which is in evidence plainly shows that Wests itself fully appreciated that it had no secure right to participate in the premiership competition. In truth, the Board was confronted with a conflict of immediate interest between Wests on the one hand and the League as a whole on the other and the exercise of the power conferred by Art 76 must necessarily be prejudicial to one or the other. Given the special expertise and experience of the Board, the bona fide and proper exercise of the power in pursuit of the purpose for which it was conferred and the caution which a court must exercise in determining an application under s 320 of the Code in order to avoid an unwarranted assumption of the responsibility for management of the company, the appellants faced a difficult task in seeking to prove that the decisions in question were unfairly prejudicial to Wests and therefore not in the overall interests of the members as a whole. It has not been shown that those decisions of the Board were such that no Board acting reasonably could have made them. The effect of those decisions on Wests was harsh indeed. It has not, however, been shown that they were oppressive or unfairly prejudicial or discriminatory or that their effect was such as to warrant the conclusion that the affairs of the League were or are being conducted in a manner that was or is oppressive or unfairly prejudicial. That being so, the appellants have failed to make good their second submission."
59 The relevant question was therefore identified as being whether the decisions of the board as to the composition of the competition "were such that no Board acting reasonably could have made them". In addressing that question, a court must bear in mind the warning sounded by the Court of Appeal (Street CJ, Kirby P and Hope JA) in Wayde ((1985) 1 NSWLR 86 at p.102):
"Courts may only interfere in the directors' decisions, relevantly, where oppression or unfair prejudice is shown. Whilst it is true that the Code should be given a beneficial construction and not unduly narrowed by judicial decisions, the terms of s 320 must not lead courts into assuming the management of corporations, substituting their decisions and assessments for those of directors, who can be expected to have much greater knowledge and more time and expertise at their disposal to evaluate the best interests of the members of the corporation as a whole."
60 The Court of Appeal then quoted with approval a passage from the judgment of Sir Thaddeus McCarthy in Thomas v H W Thomas Ltd [1984] 1 NZLR 686 (at p.697):
"[T]he powers given by s 209 are ones which in my view should not be lightly exercised, especially so when a lack of probity or want of good faith is not established. These powers can invade the traditional rights of the shareholders to determine the management of their company according to their shareholding, and while few would deny the necessity for such provisions as those of s 209 in the interests of minorities, the danger of allowing minority interests to inflict serious damage to a company's structure can be quite real."
61 I do not read anything in the majority judgment in the High Court's decision as calling into question these observations by the Court of Appeal. The fifth member of the High Court, Brennan J, delivered a concurring judgment in the course of which he said that the operation of what is now s.232 may be attracted to a decision of directors "which is made in good faith for a purpose within the directors' power but which reasonable directors would think to be unfair". Brennan J continued (at pp.472-3):
"The test of unfairness is objective and it is necessary, though difficult, to postulate a standard of reasonable directors possessed of any special skill, knowledge or acumen possessed by the directors. The test assumes (whether it be the fact or not) that reasonable directors weigh the furthering of the corporate object against the disadvantage, disability or burden which their decision will impose, and address their minds to the question whether a proposed decision is unfair. The court must determine whether reasonable directors, possessing any special skill, knowledge or acumen possessed by the directors and having in mind the importance of furthering the corporate object on the one hand and the disadvantage, disability or burden which their decision will impose on a member on the other, would have decided that it was unfair to make that decision."
62 The plaintiffs emphasise in submissions that, in Wayde, it was conceded that the directors had acted in good faith and by reference to relevant considerations. There are no such concessions in the present case. Indeed, it is part of the plaintiffs' pleaded case that:
"… the Defendant by its board of directors, representatives and football committee failed to act in good faith and reasonably in respectively making the decision [that is, the decision fixing the number of participating clubs at 10 and selecting those 10], assessing and supervising applications for admission into the New Competition and making a recommendation to the board."
63 The particulars to this paragraph of the amended statement of claim refer to the alleged shortcomings summarised at paragraph [31] above. It is important to note, however, that the paragraph refers, in terms, to the claims in contract and to the postulated contractual obligation of good faith. The concept of good faith contractual performance is to be distinguished from the duty of good faith to which directors are subject in the performance of their functions and the exercise of their powers. It is, of course, to the latter obligation of good faith that the comments on the subject of good faith were directed in the judgments in Wayde, both in the High Court and in the Court of Appeal.
64 The duty of good faith to which directors are subject and which was the subject of the concession in Wayde is both a fiduciary duty incidental to the office of director of a company and a statutory duty imposed by s.181 of the Corporations Act. It is a duty with respect to the exercise of directors' powers and, of course, a duty owed to the company.
65 The duty of good faith has existed in explicit statutory form only since 13 March 2000 when the Corporate Law Economic Reform Program Act 1999 (Cth) commenced. Section 181(1) now requires directors to exercise their powers and discharge their duties in good faith in the best interests of the corporation. It has been suggested that the statutory requirement of "good faith" will be found not to be satisfied where there is fraud, dishonesty, malice, an intentional breach of duty, recklessness or an improper purpose or where a director acts honestly but fails to make a real or genuine attempt to discharge his or her duty: E Kyrou, "Directors' Duties, Defences, Indemnities, Access to Board papers and D&O Insurance Post CLERPA", (2000) 18 C&SLJ 555 at pp.558-9. This analysis involves definition by exception: if all the negative elements are lacking, the positive requirement is satisfied. This approach has been taken to the definition of "good faith" in other contexts: see, for example, the observations of Lord Scott of Foscote in Manifest Shipping Co Ltd v Uni-Polaris Shipping Co Ltd [2003] 1 AC 649. As far as the "good faith" aspect of directors' fiduciary duties is concerned, a definition employing both negative and positive elements is to be found in a description by Isaacs J in Australian Metropolitan Life Assurance Co Ltd v Ure (1923) 33 CLR 199 (at p.217):
"A regulation such as art. 21 entrusts to the directors a corporate power, which is exercisable by them as agents of the Company. But, although it is a power which necessarily involves some discretion, it must be exercised, as all such powers must be, bona fide--that is, for the purpose for which it was conferred , not arbitrarily or at the absolute will of the directors, but honestly in the interest of the shareholders as a whole."
66 Even if the complaints of the plaintiffs regarding misapplication of and departure from the criteria notified to members were made out, it would not follow that the directors of Soccer NSW had failed to act in good faith. It was for the directors to make a decision in the best interests of the company, as they saw them. The criteria notified to members and assessments of staff panel and the Football Committee by reference to the criteria were among the matters the directors properly took into account. Subjective judgments were necessarily and inevitably brought to bear. The directors were not bound to confine themselves to the stated criteria. Members' responses to questions related to the criteria, as well as inquiries made by staff about aspects relevant to satisfaction of the criteria, represented only part of the body of considerations to be taken into account by the directors. It was not the function or duty of directors to act in some automatic and unthinking way by simply admitting every member that appeared to meet the criteria and excluding every member that appeared not to meet them. There is no evidence of dishonesty, fraud, malice or recklessness. There is no evidence of improper or collateral purpose: everything done was obviously done with a view to producing an improved first division competition in furtherance of the company's objects and to the advantage of the general body of members. There is no evidence suggesting that there was not a real and genuine attempt to discharge directors' duties. That attention was paid to matters beyond the criteria and that the eventual decision may not have corresponded exactly with the result of strict and literal application of the criteria does not mean that the directors, as directors, failed to act in good faith or took irrelevant considerations into account.
67 The matters that were the subject of concessions in Wayde may thus be seen not to arise here. It follows that, from the perspective of ss.232 and 233 of the Corporations Act, the question to be addressed is whether the decisions of 12 October 2005 was, in the words of the majority in the High Court, "such that no Board acting reasonably could have made them". The fact that the effect upon one or more disappointed applicant members may be "harsh" is not sufficient to cause the decision actually made to be an unreasonable or irrational decision of the kind contemplated. The effect of the decisions made by the board of Soccer NSW on 12 October 2005 were unfavourable from the point of view of St George, Bonnyrigg and the other applicant clubs which were not admitted to the new first division competition. The result for them was that they would be able to field teams in 2006 only in the second division and lower competitions. But, as I have said, that, even if judged to have a "harsh" effect, does not mean that the decisions were such that no reasonable board could have made them. The several factors that lead to the conclusion that there was no lack of good faith also mean, in my judgment, that the "no Board acting reasonably" quality does not attach to the board's decisions of 12 October.
68 The claims based on ss.232 and 233 of the Corporations Act therefore fail.
The representations relevant to the estoppel and deceptive conduct claims
69 In seeking to rely on estoppel and s.52 of the Trade Practices Act (or s.42 of the Fair Trading Act), St George and Bonnyrigg say, in paragraph 14 of the amended statement of claim:
"During the period between 8 August and 30 September 2005, various representatives of the Defendant represented to the First and Second Plaintiffs that the New Competition would comprise 12 teams (' the 12 teams representation ').
PARTICULARS
(a) Conversations between Ross Gardner, President of the First Plaintiff and Tom Doumanis, President of the Defendant.
(b) Conversation between Ross Gardner and Michael Sivris of the First Plaintiff and Tom Doumanis and Michael Quarmby, Chief Executive Officer of the Defendant on 30 August 2005.
(c) The Plaintiffs repeat paragraph 7 above.
(d) The representation was by its nature, a continuing representation."
70 This is followed by paragraph 15:
"On 30 August 2005, representatives from 15 of the 16 Premier League clubs (including both of the Plaintiffs) and three directors of the Defendant (including the President, Tom Doumanis) attended a meeting convened by the Defendant during which the clubs presented their concerns with respect to the New Competition to the directors of the Defendant. During this meeting, the Defendant through Mr Doumanis represented that:
(a) the New Competition would kick off in 2006 with the best 12 teams; and
(b) Clubs were to ignore the allocation of member associations within districts/regions set out on page 10 of the application form for the New Competition, as this allocation would be redefined."
71 It is then pleaded in paragraph 16 that, in reliance on the representations in paragraphs 14 and 15, St George and Bonnyrigg prepared and submitted applications for admission to the new competition.
72 Paragraph 14 of the amended statement of claim alleges that the "12 teams representation" was made during the period 8 August 2005 to 30 September 2005. Somewhat curiously, the particulars to paragraph 14 then refer to events that happened before 8 August 2005. They do so by referring back to paragraph 7 which is in these terms:
"On or about 28 June 2005, representatives from 14 of the 16 Premier League clubs (including both the Plaintiffs) attended a meeting convened by the Defendant at which meeting a resolution was put seeking support for the introduction of a New Competition comprising 12 or 14 clubs to start in January 2006. As the vote of the clubs was tied, the President of the Defendant declared that the New Competition would comprise twelve clubs starting in January 2006."
73 The claim based on the "criteria representation" is pleaded in paragraphs 30 and 31 of the amended statement of claim:
"30. Further or in the alternative, the Defendant represented to the Plaintiffs and to all applicants for admission to the New Competition that applicants were required to meet and comply with the criteria in the New Competition Business Plan (' the criteria representation ').
Particulars
The criteria representation was express, written and was made in the New Competition Business Plan. The representation was by its nature a continuing representation.
31. Contrary to the criteria representation, applicants for admission to the New Competition were not required to meet and comply with all aspects of the New Competition criteria.
Particulars
The Plaintiffs repeat the particulars to paragraph 20."
74 The "criteria representation" is linked wholly to the content of the Business Plan. I shall refer to the relevant parts of it presently. As far as the "12 teams representation" is concerned, I propose to consider separately the evidence relevant to each of the significant occasions involved in the plaintiffs' allegations.
The meeting of 28 June 2005
75 St George and Bonnyrigg accept that the meeting of 28 June 2005 and statements at it are less significant than later events in this part of their case.
76 There are no minutes of the 28 June meeting. Mr Gardner and Mr Sivris of St George and Mr Ilijevski of Bonnyrigg were all present at the meeting. Each gave evidence that Mr Doumanis, chairman of Soccer NSW, said after the taking of a vote (necessarily, non-binding, in view of the nature of the meeting) words to the effect:
"Okay, it will be a twelve team competition starting in January."
77 Mr Quarmby, the chief executive of Soccer NSW, said in evidence that Mr Doumanis said these words, but with "up to" inserted before "twelve". Mr Doumanis himself gave evidence that he could not recall saying after the vote that the competition would be a twelve team competition and thought that he may have spoken of a competition of "up to" twelve teams. Mr Culina of Soccer NSW accepted that Mr Doumanis had said words to the effect attributed to him by the plaintiffs' witnesses.
78 Mr Kelly, a director of Soccer NSW, could not recall Mr Doumanis saying that the new competition would be a twelve team competition. Mr Jackson, another director, said that the words "twelve teams" and "up to twelve teams" were used by various people. He accepted that Mr Doumanis may have referred to a "twelve teams" competition, although also using the phrase "up to twelve teams", of which "twelve teams" should have been recognised as a shorthand version.
79 Although there were no minutes, there is some contemporary documentary evidence of proceedings. It consists of a copy of a series of overhead slides shown at the meeting. The first slide, headed "Concept" showed:
"
· Up to a 12 team competition
· Home and away basis
· 22 Rounds
· Top 5 Final Series."
Events after 28 June 2005
80 The plaintiffs referred to documents created after 28 June 2005 as possibly throwing light on what was said on that occasion by Mr Doumanis.
81 They referred to a note made by Mr Culina the following day, 29 June 2005, of a phone call from Mr Patterson of Belconnen Blue Devils:
"Tony Patterson supports the idea of a 12 team comp Jan 2005 [sic] start. I spoke to him 5.45 pm 29.6.05."
82 They also referred to minutes of a Football Committee meeting of 12 July 2005 (the correctness of which was not conceded by some of Soccer NSW's witnesses involved):
"It was decided that it will be a 12 team competition."
83 Next they referred to an email from Mr O'Regan, chairman of the Premier League Clubs Forum to Mr Kelly dated 18 July 2005 which included the words:
"After being told that we will now have a 12 team competition …"
84 There is also reference to minutes of a meeting of the Premier League Clubs Forum on 22 August 2005 referring directly to the meeting of 28 June 2005 in these terms:
"At a previous meeting called by SNSW at Valentine Park the main topic was whether to 'fast track' a competition made up of 12 clubs rather than 14 or 16 and this was voted on by the clubs present."
85 It is relevant to refer, by way of context, to a document circulated to clubs by Soccer NSW on 14 June 2005, entitled "NSW Premier League 2006-2007". That document set out the views of the Football Committee regarding the future of the first division competition, in particular that
"the Premier League should be dismantled at the conclusion of the 2005-2006 season and that a restructured competition of no more than 12 teams should commence operations in the 2006-2007 season."
86 Also that:
"the successful applicants should represent districts/regions and that the total number of clubs should be no more than 12, including a team from the ACT and such regional teams as the Board deems fit."
87 Included in that document were draft terms of reference for the Football Committee's further activity in relation to the proposal. These referred to both "geographic areas to be represented by each team" and "criteria and benchmarks required to be met by the participating clubs".
The document of 29 July 2005
88 On 29 July 2005, the Football Committee produced detailed recommendations on the matters within its terms of reference. These were contained in the document of that date entitled "Report into the Structure of the New Premier League Competition". It became available to interested parties through the Soccer NSW website. Mr Gardner of St George downloaded a copy before 7 August. The "summary" appearing early in the document reads:
"The Football Committee, in presenting its findings and recommendations, has done so in accordance with the Terms of Reference and the requirements of the Board for a competition of no more than 12 teams with district/regional representation. In formulating its conclusions, the Football Committee holds the philosophy that there is a need to ensure that the requirement for geographic representation is balanced with the responsibility to ensure that the best credentialled teams comprise the members of the New Competition ."
89 The document went on to deal in some detail with selection criteria and the matter of "regions".
90 The following appear as recommendations:
"42. Each application within a district/region be considered against other applications within that district/region.
43. Within each district/region, each applicant's Business Plan be assessed.
44. Having considered the Business Plan, the capacity of each applicant to meet the criteria then be assessed, in order to determine the best applications.
45. Within a district/region (other than Far North, Country South/Riverina and Country West, which may each be represented by 1 up to team) up to 2 teams may be admitted to the New Competition.
46. Should an applicant in excess of the proposed eligible members within a district/region provide a compelling submission that warrants its inclusion, the Board be empowered to include that club if it can be clearly demonstrated that to do so would be beneficial to the district/region and the New Competition, provided that such decision does not cause the exclusion of a club in another district/region which has a superior application."
The meeting of 8 August 2005
91 At the information session held by Soccer NSW on 8 August 2005, member clubs present which had signed the necessary expression of interest form were given copies of the Business Plan and the Application Form. St George's expression of interest is dated 4 August 2005. I infer, therefore, that its representatives received the Business Plan and the Application form at the meeting. Bonnyrigg's expression of interest is dated 11 August 2005, from which I infer that its representatives were not formally provided with the documents on 8 August 2005. But given the nature and purpose of the meeting, it is highly likely that the Bonnyrigg representatives became aware of the important parts of the content of the documents in the course of the meeting.
92 The minutes of the meeting read in part as follows:
"Questions were raised by the Clubs as follows:
* Clarification of districts
* Measures would be used to determine successful applicants
* Weighting of components of submission
* Clubs were not involved in setting criteria
* Associations not willing to be involved with Club
* The inclusion on Clubs' boards of a high-profile individuals/local identities required a constitutional change
* Clarification of ground sharing
* Salary floor in lieu of salary cap. Realistic salary floor so as not to dilute competition
* Clarification on district players
* Market research not done
* The necessity of junior teams
* History of participation should be taken into account
* The financial problems faced by hiring General Manager
The questions were answered by CEO. It was explained that applications would be measured objectively and subjectively. It is in the best interest of the new competition to remain transparent and honest.
It was explained the need to improve grounds was paramount to give spectators reasonable comfort."
93 At this point, it is appropriate to review the content of the Business Plan and the Application Form. I begin with the Business Plan. The first paragraph reads:
"This Business Plan provides the framework by which Soccer NSW will establish a New Competition to commence in January, 2006 to replace the now defunct Premier League. It is both an internal document and a tool which clubs seeking to join the New Competition can use as a basis for their own planning and in the preparation of their applications for membership."
94 The Business Plan then goes on to outline the competition structure, including:
"up to 12 teams with district/regional representation."
95 Then follows:
"The Business Plan provides the Board with flexibility to ensure that it can retain the objective of district/regional representation yet still ensure that the competition comprises the best clubs. At the club level, the Business Plan demands greater professionalism and strict adherence to membership criteria, but also offers assistance and guidance from Soccer NSW to clubs in all areas of their operations."
96 In section 5 of the Business Plan there is reference to the districts or regions to be represented in the new competition. After a description of the regions (by reference to areas covered by member Association), the Business Plan continued:
"Given the large number of districts/regions, compared with the available positions in the New Competition, Soccer NSW has adopted the approach of linking areas covered by member Associations and then making a determination of the maximum number of teams to represent those areas. These linkages have no impact on the ongoing workings of the Associations and only have relevance to the determination of district/regions to be represented in the New Competition ."
97 It was then stated that each of three county regions could be represented by one team and:
"All other areas, shown above, may be eligible for 2 positions in the New Competition."
98 The selection methodology was dealt with in section 5.2:
"The method of selecting clubs for the New Competition will be as follows:
Applicants will be required to nominate the district/region they seek to represent and must base their operations within that district/region.
Each application will be considered against other applications from within that district/region.
Within each district/region, each applicant's Business Plan will firstly be assessed.
Having considered the Business Plan, the capacity of each applicant to meet the competition criteria will be assessed.
Within the Far North, Country South/Riverina and Country West districts/regions, up to 1 club from each district/region may be eligible for admission.
Within the districts/regions of North, East, Far West, South West, Central West and Far South, up to 2 clubs from each district/region may be eligible for admission.
In the case of interstate applications, including the ACT, up to 3 clubs may be eligible for admission.
Where there are only 1 or 2 applications within a district/region, the Board will only approve such applications where the applicants' Business Plans and their capacity to meet the necessary competition criteria are deemed to be in order.
Should an applicant in excess of the proposed eligible numbers within a district/region provide a compelling submission that warrants its inclusion in the New Competition, the Board will be empowered to include that club if it can be clearly demonstrated that to do so would be beneficial to that district/region and the competition. However, such decision must not cause the exclusion of a club in another district/region which has a superior application.
The best applications will be granted admission into the New Competition up to a maximum number of 12 clubs.
This system is designed to balance the requirement for district/regional representation and the responsibility to ensure that the best applications are successful ."
99 Section 5.3 dealt with competition criteria. It began: