Sullivan v Greyfriars Pty Ltd [2016] VSCA 12

1 I have read in draft the judgment of Ferguson and McLeish JJA. I agree with them, for the reasons they have given and for one additional reason, that leave to appeal should be granted, and that the appeal should be allowed in so far as it relates to the order for the payment of interest but should otherwise be dismissed.

2 My additional reason concerns ground 1. The contention that no evidence of either the Articles of Association or a determination of directors had been given should be rejected for the additional reason that the ground raises factual matters which were not conceded, which had not been raised at the trial, and which could possibly have been met by additional evidence had they been raised at trial.[1] Most obviously, Ms McLennan could have been asked to explain the process by which the levies were determined more fully.

3 Ferguson and McLeish JJA refer to this matter but conclude it is unnecessary to determine it given their conclusion on ground 1, with which I agree, that there was evidence which the magistrate was entitled, although not bound, to accept.

4 The applicant seeks leave to appeal against orders of an associate judge dismissing his appeal on a question of law from an order of the Magistrates' Court.[2] By that order, the magistrate ordered the applicant to pay to the respondent the sum of $9,712.30 together with interest in the sum of $3,955.48, and dismissed a much larger counterclaim brought by the applicant.[3] The proceedings arose from a series of disputes between the applicant and the respondent, which is the owner of a

company title block of units in which the applicant owns shares entitling him to occupation of one of the units in the block.

5 On 30 July 2015, this Court gave reasons for dismissing an application made by the respondent for summary dismissal of the application for leave to appeal, and gave the applicant leave to file and serve a proposed notice of appeal confined to two specific grounds relating to the respondent's claim.[4] Such a notice was duly filed and served. No application for leave to appeal was permitted in respect of the manner in which the associate judge, or the magistrate, dealt with the applicant's counterclaim.

6 Before turning to the two proposed grounds of appeal, it is necessary to explain the course which the matter took in the Magistrates' Court.

7 The respondent's claims against the applicant were the subject of a series of amendments. The respondent originally claimed only $700.50, in respect of the installation of some Venetian blinds and some electrical works in the applicant's unit. The complaint was subsequently amended to claim instead for quarterly maintenance levies alleged to have been determined between April 2009 and July 2011 in the total amount of $2,106.10, special levies alleged to have been determined at a directors' meeting on 19 May 2008 and general meetings on 11 December 2008 and 30 November 2010 in the total amount of $3,482.95, legal fees and other disbursements and charges totalling $14,982.21, plus interest at the rate of 12 per cent.

8 At trial, the last of these sets of claims was abandoned, an expanded claim for maintenance levies was made (in respect of a longer period) and larger special levies were claimed, arising from decisions made at three general meetings (only one of which had been the subject of the previous claim). Interest was sought at the rate of 10 per cent. No amended complaint was provided outlining these changes.

9 In the end, the respondent sought to recover quarterly maintenance levies from 1 April 2009 to 30 June 2012 in the amount of $4,483 and special levies totalling $5,929.80 said to have been imposed at general meetings held on 30 November 2010, 12 December 2011 and 24 September 2012, together with interest in the amount of $3,955.48.

10 The respondent called one of its directors, Ms Marcia McLennan, as its only witness. Documents were tendered including a draft proposed special resolution to alter the articles of association of the respondent, a schedule of maintenance and other charges said to be due from the applicant to the respondent, and unsigned minutes of general meetings of shareholders of the respondent held on 30 November 2010, 12 December 2011 and 24 September 2012. Invoices to the applicant for maintenance fees in amounts significantly larger than those claimed were also tendered, dated 14 July 2011, 13 October 2011, 13 January 2012 and 13 April 2012.

11 The claims were upheld in the amounts set out in paragraph 1 above. The amount awarded was less than that claimed by way of levies, because the respondent submitted that $700.50 should be deducted by reason of the abandonment of the claim originally made in respect of the Venetian blinds. It appears that this deduction was favourable to the applicant.

12 Argument both at trial and before the associate judge concentrated primarily on the counterclaim. However, before the magistrate and in oral submissions before the associate judge the applicant submitted that the necessary notice of the respondent's intention to seek approval of a special levy (and perhaps also the maintenance levies) had not been given. As will be explained, other arguments sought now to be made were not raised in the courts below.

13 The grounds of appeal upon which the Court permitted the application for leave to appeal to proceed were prepared on behalf of the applicant by Mr Joseph Carney of counsel, pursuant to the Victorian Bar's pro bono scheme. Mr Carney also made helpful written and oral submissions as amicus curiae on the respondent's application for summary dismissal but has not been involved in the matter subsequently.

14 The first proposed ground of appeal alleges that the associate judge erred in law in holding that the magistrate was entitled to rely on the oral evidence of Ms McLennan as to the amounts outstanding by way of quarterly maintenance and special levies. The ground submits that there was no evidence of a power in the Articles of Association of the respondent for the shareholders in general meeting to raise a levy, or of any resolution by the directors to do so.

15 The second proposed ground of appeal asserts that the applicant was denied procedural fairness in the proceeding in the Magistrates' Court in a number of respects. In particular, it is contended that the applicant should have been given time in which to formally raise a defence to the amended claims of the respondent. As already observed, of the three resolutions imposing special levies upon which the respondent relied, only one was alleged in the original claim. In other words, the respondent's case in relation to two of the three resolutions was brought belatedly and without an opportunity for the applicant formally to respond to it.

16 In addition, the second ground contends that the magistrate failed to consider the interest properly payable on the successful claims. It is not necessary to say more about this aspect, as the respondent indicated at the hearing of the application for leave that the interest calculation upon which it succeeded at trial had been in error and that it no longer pursued a claim for interest.

17 The argument on the first ground of appeal relies primarily on the paucity of evidence upon which the respondent succeeded in its claims. First, at trial the respondent tendered a document described as its Articles of Association but which on examination, as the magistrate pointed out, consisted only of a copy of a proposed special resolution to amend the Articles.

18 In our opinion, nothing turned on this discrepancy. Ms McLennan gave evidence describing the document as containing the Articles, and the magistrate was therefore entitled to proceed on the basis that it contained the relevant operative provisions of the respondent's Articles of Association governing the imposition of levies.

The Directors may from time to time determine a levy payable by the holders of each or any of the classes of shares in the company. ...

The amount of any such levy shall be a debt due and payable by the shareholder to the company and in the event of the failure of the shareholder to pay the levy to the company upon demand the same may be recovered from the shareholder as a liquidated debt.

20 Ms McLennan gave evidence that the 'directors have the power to raise levies when required, but usually they're referred to the AGM for the membership to consider'. The principal argument under the first ground of appeal is that proof of the amounts of the levies in question required proof of a valid resolution of directors of the respondent who imposed the levy in accordance with the Articles.

21 The resolutions which were placed in evidence were resolutions of the annual general meeting of the respondent rather than of any meeting of the directors. In written submissions filed in connection with the respondent's summary dismissal application, Mr Carney submitted that if only the directors had power to raise the levies, any resolution of the general meeting purporting to exercise such a power was ineffective.[5] Counsel for the respondent submitted that the presence of the directors at the relevant general meetings, and reference in the case of one such meeting to a supporting document tendered at trial, showed that the directors had in fact determined to impose the levies. Reliance was placed on the fact that the directors and the general meeting were of one mind. The following analysis was invoked:[6]

The directors themselves referred the matter to the general meeting. They sought the shareholders' approval of the course which the directors had otherwise determined to follow. They asked for the shareholders' advice; and undertook to act in accordance with the shareholders' opinion. But that advice did not represent any exercise of power, because the directors were not bound to take it. They said that they would; but voluntary acquiescence is not the same as submission. If, therefore, these resolutions are regarded as the expression by the shareholders of their approval of the transaction which the directors contemplated, they do not involve the exercise of power at all. They were not acts in the law, and could have no effect.

22 The respondent submitted that, while the resolutions recorded in the minutes of the general meetings may have had no effect, they were still evidence of the directors having first determined and then placed before the members the annual budgets (which included the maintenance levies) and resolutions for the maintenance levies.

23 On one view, the evidence of Ms McLennan was at odds with this interpretation of the minutes. She described the levies as having been 'referred to the AGM for the membership to consider', which could be taken as describing a process in which the directors merely made recommendations without ever purporting to give effect to them in their capacity as directors. However, the evidence could also be interpreted as indicating that the directors and the general meeting worked together in relation to the imposition of levies, leaving open the possibility that the directors themselves independently resolved on the appropriate levies and only sought the approval of the shareholders for the sake of completeness.

24 It was apparent from her evidence that Ms McLennan was aware that the power to impose levies resided with the directors. It could be inferred from her evidence that the directors were instrumental in deciding the amounts of the levies, and the minutes could be taken as showing that the general meeting and the directors acted in tandem in this respect. Ms McLennan gave evidence that the amounts in question were owing by the applicant, and the magistrate accepted and acted upon her evidence. In our opinion, the magistrate was entitled to do so. She could instead have noted the absence of any directors' resolutions or calculations supporting Ms McLennan's figures and reached a different conclusion. But she was not bound to do so. There was sufficient evidence before her, albeit of a most summary kind, to make out the claims. That would have sufficed to require the associate judge to dismiss the applicant's appeal on that ground, had the matter been raised before her.[7]

25 The respondent raised a further argument in resisting the first proposed ground of appeal. It submitted that, had the point been raised at trial, it could have been met by evidence.[8] Counsel did not suggest that directors' resolutions could have been produced. It was submitted only that the directors could have been called to address the point. Whether or not an adjournment would have been permitted for that purpose, Ms McLennan was already present and could have been asked questions on the subject.

26 It is not necessary to consider what would have been the position had the finding of the magistrate not been open to her on the evidence that was led. The Court would have needed to consider whether the interests of justice demanded a new trial, enabling the respondent to address the argument now raised and which could have been met by evidence at first instance, or whether the fact that the applicant was not legally represented and the respondent had failed to prove its case, in a matter involving approximately $10,000, meant that the claims ought to have been dismissed for want of evidence. Since the first proposed ground must fail in any event, nothing more needs to be said on this aspect of the case.

27 In the course of dismissing the respondent's application for summary dismissal, this Court held that the proposed grounds of appeal could not be dismissed as fanciful.[9] No doubt taking account of that conclusion, the respondent conceded that there should be a grant of leave to appeal. In our view, that concession was rightly made. Although the grounds were not raised below, the first ground raises a real question as to whether the respondent undertook the steps necessary to impose the levies it successfully recovered at trial. One view of Ms McLennan's evidence was that she had affirmatively stated that the directors had not passed the necessary resolutions and instead deferred to the general meeting, which lacked the requisite power. In the circumstances, the Court should act on the concession and grant leave to appeal. But for the reasons given, the first ground of appeal should fail.

28 The second proposed ground of appeal raises the natural justice arguments. As already indicated, the question of interest has been conceded. Consistently with that concession, leave in respect of this ground should also be granted, and the appeal allowed to that extent.

29 However, in our opinion there is no basis for setting aside the orders for payment of the levies on the basis of any denial of natural justice. While the claims were amended at a regrettably late stage, the applicant was not disadvantaged as a result. The net effect was to reduce the overall claim by more than half, as a result of abandoning a claim for legal costs and other disbursements. While the amounts of the levies were updated and increased, the substance of the claims and the manner of their proof was unchanged. In the circumstances, there was no denial of natural justice.

30 The second ground of appeal also contends that the magistrate failed to consider the applicant's defence regarding the provision of notice or to provide adequate reasons. It may be accepted that the magistrate's reasons are very brief and do not explain why she was 'satisfied that the levies have been properly raised'. But it is tolerably clear from the state of the evidence, which the magistrate said she had carefully considered, that the decision was based substantially on the evidence of Ms McLennan. While the magistrate did not advert to the question whether adequate notice had been given of the necessary resolutions, there is no basis in the evidence, or the applicant's oral submissions at trial, for thinking that shareholders were required to be given notice of meetings of directors (as distinct from meetings of shareholders). The applicant's argument at trial depended on the existence of such an obligation. The magistrate ought to have dealt with the argument, but her failure to do so did not give rise to any miscarriage of justice.

31 There is therefore no substance in the remaining aspects of the second proposed ground.

32 It follows that leave to appeal should be granted. The appeal should be allowed in so far as it relates to the order for the payment of interest, but should otherwise be dismissed.

[1] Water Board v Moustakas [1988] HCA 12; (1988) 180 CLR 491, 497; Coulton v Holcombe [1986] HCA 33; (1986) 162 CLR 1, 7-8; Boz One Pty Ltd v McLellan [2015] VSCA 68 [143].

[2] The orders of the associate judge were made on 16 September 2014. Leave to appeal is required by virtue of former s 17A(3A)(b) of the Supreme Court Act 1986.

[3] Sullivan v Greyfriars Pty Ltd [2014] VSC 422.

[4] Sullivan v Greyfriars Pty Ltd [2015] VSCA 196.

[5] John Shaw & Sons (Salford) Ltd v Shaw [1935] 2 KB 113, 134; LexisNexis, Ford, Austin and Ramsay's Principles of Corporations Law (at 15 January 2015) [7.070.3].

[6] Winthrop Investments Ltd v Winns Ltd (1975) 2 NSWLR 666, 683-4.

[7] State of Victoria v Subramanian [2008] VSC 9; (2008) 19 VR 335, 346-8 [30]-[34].

[8] Water Board v Moustakas [1988] HCA 12; (1988) 180 CLR 491.

[9] [2015] VSCA 196 [45].