Canberra Labor Club Limited and the Companies Act 1981 [1986] ACTSC 103 (27 October 1986)

SUPREME COURT OF THE ACT

CANBERRA LABOR CLUB LIMITED AND THE COMPANIES ACT 1981
S.C. No. 1666 of 1986
Companies

COURT

IN THE SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY
Miles C.J.(1)

CATCHWORDS

Companies - annual general meeting - failure to notify certain classes of members - whether meeting ought be declared invalid.

Companies - election of directors - method of voting - whether articles require voting by proportional representation.

Companies - order declaring proceeding invalid under s.539 of Companies Act 1981 - nature of discretion.

Re Compaction Systems Pty. Limited (1976) 2 NSWLR p.477

Re Australian Continental Resources Ltd. (1976) 10 ACTR 19 pp.33-34

Mulcahy v. Payne & Others [1920] HCA 30; (1920) 27 CLR 470

HEARING

CANBERRA
27:10:1986

ORDER

The summons be dismissed.

The club is to pay one half of the costs of the applicant and of the respondents, otherwise all parties are to bear their own costs.

DECISION

The Canberra Labor Club Limited, ("the club") was incorporated under the Companies Act 1981 and is a company limited by guarantee. It is governed by a board of nine directors. The provisions in its articles relating to the election of directors are somewhat complex, but it is sufficient for present purposes to say that the positions of three of the directors were due to fall vacant at the 1986 annual general meeting and that the vacancies were to be filled by an election in accordance with the articles.

2. The annual general meeting or, since its validity is now challenged, what purported to be the annual general meeting, was held on 12 October 1986 and three members were declared to be elected as directors. The election of two of those persons is now also under challenge.

3. The applicant is a member of the club. She complains that she received no notice of the meeting and she applies for the relief set out in the summons. It is as follows:

"1. Declaration as follows:-

(a) that the purported Annual General
Meeting of the Canberra Labor Club

Limited ("the Club") held on 12th
October 1986 was invalid;

(b) alternatively, that, pursuant to

Section 539(3) of the Companies Act,
the said meeting be declared void;

(c) alternatively, that the resolution

passed at the said meeting as to the
method of voting for members of the
Board of Directors of the Club be
declared invalid;

(d) that John Riddell, Kenneth Lionel Fry
and Ellnor Judith Grassby are and
continue to be directors of the Club
until the Annual General Meeting to
be held in accordance with 2, below;

(e) that John Riddell, Ian Miller and
Peter McMenamin were not validly
elected directors of the Club at the
said meeting.

2. An order pursuant to Section 359(4) of the
Companies Act that the time for the giving
of notice of and the holding of the Annual
General Meeting of the Club be extended.

3. An injunction, both permanently and pending
suit, restraining Ian Miller, Peter
McMenamin and John Riddell from acting or
purporting to act as Directors of the Club.

4. Such further or other order as the Court
sees fit."

4. The application is supported, inter alia, by the affidavit evidence of Mr. Henry Ernest Lawrence, sworn on 17 October 1986. Mr. Lawrence is a life member of the club. He too received no notice of the meeting, but he heard about it, attended and participated in it. He described in his affidavit how the business of the annual general meeting was conducted and, in particular, how the election for directors took place. The meeting was chaired by a retiring director, Mr. Kenneth Lionel Fry. There was a resolution that the election of directors should take place according to what was called the first past the post system instead of by the proportional representation system which had applied at the previous annual general meeting.

5. Mr. Fry declined to accept the resolution as applicable to the imminent election of directors. However, there was a successful dissent from his ruling. The six candidates for the three vacancies addressed the meeting and the election took place. The evidence is not quite clear on the point, but I find that the members present, some 160 in number, each voted by marking a ballot paper. A copy of the ballot paper is in evidence. It bore a list of the names of each of the six candidates with a square alongside each name. It contained the following instruction:

"Mark your vote by placing the number 1 in the
square opposite the name of the candidate you most
prefer. Then indicate the order of your
preference

for all of the remaining candidates by
placing the numbers 2, 3, 4, 5 and 6 in the
squares opposite their names."

6. The counting of votes then took place and the returning officer announced that the directors elected were Mr. John Riddell, Mr. Ian Miller and Mr. Peter McMenamin. Two of the retiring directors, Mr. Fry and Mrs. Ellnor Judith Grassby, failed to be re-elected. Mr. John Riddell, a retiring director, was successful in being elected. Again, there is no evidence on the point, but there is no dispute that the votes were correctly counted and that the results were correctly announced in accordance with the "first past the post" system, whatever the latter phrase may mean.

7. The applicant seeks declarations that the annual general meeting or the election or both were invalid and she seeks consequential relief directed towards a re-election. The respondents to the application are Messrs. Miller and McMenamin. No steps have been taken to join Mr. Fry or Mrs. Grassby as parties. The Court's powers are governed by s.539 of the Companies Act, the provisions of which are as follows:

"539.(1) In this section, unless the contrary
intention appears -

(a) a reference to a proceeding under this Act is

a reference to any proceeding whether a legal
proceeding or not; and

(b) a reference to a procedural irregularity

includes a reference to -

(i) the absence of a quorum at a meeting of
a corporation, at a meeting of
directors or creditors of a corporation
or at a joint meeting of creditors and
members of a corporation; and

(ii) a defect, irregularity or deficiency of
notice or time.

(2) A proceeding under this Act is not
invalidated by reason of any procedural
irregularity
unless the Court is of the opinion that the
irregularity has caused or may cause substantial
injustice that cannot be remedied by any order of
the Court and by order declares the proceeding to
be invalid.

(3) A meeting held for the purposes of this
Act, or a meeting notice of which is required to
be given in accordance with the provisions of this
Act, or any proceeding at such a meeting, is not
invalidated by reason only of the accidental
omission to give notice of the meeting or the
non-receipt by any person of notice of the meeting,
unless the Court, on the application of the person
concerned, a person entitled to attend the meeting
or the Commission, declares proceedings at the
meeting to be void.

(4) Subject to the following provisions of
this section and without limiting the generality
of any other provision of this Act, the Court may,
on application by any interested person, make all
or any of the following orders, either
unconditionally or subject to such conditions as
the Court imposes:

(a) an order declaring that any act, matter or
thing purporting to have been done, or any
proceeding purporting to have been instituted
or taken, under this Act or in relation to a
corporation is not invalid by reason of any
contravention of, or failure to comply with,
a provision of this Act, or a provision of
any of the constituent documents of a
corporation;

(b) an order directing the rectification of any
register kept by the Commission under this
Act;

(c) an order relieving a person in whole or in
part from any civil liability in respect of
a contravention or failure of a kind
referred to in paragraph (a);

(d) an order extending the period for doing any
act, matter or thing or instituting or
taking any proceeding under this Act or in
relation to a corporation (including an
order extending a period where the period
concerned expired before the application
for the order was made) or abridging the
period for doing such an act, matter or
thing or instituting or taking such a
proceeding,

and may make such consequential or ancillary
orders as the Court thinks fit.

(5) An order may be made under paragraph (4)(a) or (c) notwithstanding that

the contravention
or failure referred to in the paragraph resulted in the commission of an offence.
(6) The Court shall not make an order under this section unless it is satisfied -

(a) in the case of an order referred to in
paragraph (4)(a) -

(i) that the act, matter or thing, or the
proceeding, referred to in that paragraph
is essentially of a procedural nature;

(ii) that the person or persons concerned
in or party to the contravention or
failure acted honestly; or

(iii) that it is in the public interest that
the order be made;

(b) in the case of an order referred to in

paragraph (4)(c) - that the person subject
to the civil liability concerned acted
honestly; and

(c) in every case - that no substantial

injustice has been or is likely to be
caused to any person."

8. The applicant relies on alleged procedural irregularities and I will deal with these in turn. First, there is the alleged failure to give notice of the meeting to all the members. The evidence satisfies me that there were, at the relevant time, 10,170 members. Of these, 485 were life members. According to Article 16, the life members have full voting rights. Then there were 5,988 members who had been admitted to family membership. There is no provision in the articles for family membership, but there was an internal arrangement whereby the club permitted two adults living in the same household, together with their children under the age of 18, to be admitted to membership at a reduced fee. The voting rights of those two adults is not affected by those arrangements. The articles provide that members under the age of 18 years do not have voting rights. The two adults admitted to membership in this way were regarded as being admitted to family membership.

9. It was the practice of the club to send one copy only of the club journal to each household which attracted family membership. Provision for service of a notice by post is made under Article 57 of the club's Articles of Association, and insofar as it was necessary for all members to be given notice of the 1986 annual general meeting the club adopted the course of placing the notice in the club journal. The Secretary-Manager, Mr. Wignall, after consultation with the management of clubs of a similar nature in the Canberra area, decided that service of one copy of the journal containing the notice of the annual general meeting would be sufficient notice of the meeting for each of the two members residing at any one of the family membership households. Although the evidence is silent on the point, I am prepared to infer and I hold that the labels attached to the journal for dispatch through the post to each family membership household were not addressed to a single member but addressed jointly to the two adult members resident there.

10. On 18 September 1986 Mr. Wignall caused 6,691 copies of the journal to be posted. Each journal bore a label produced and printed by the club's computer. The data base of the computer included the names and addresses of all members. Unknown to the club management at the time the computer failed to print the labels bearing the names and addresses of the 485 life members. When one of the life members drew this omission to the attention of Mr. Wignall he caused notices of the annual general meeting to be published in the Canberra Times on 8 October 1986 and to be displayed around the club premises.

Accordingly, in summary, I find as follows:

1. 485 life members were not served with notice of
the meeting.

2. 5,998 family members received 2,294 notices, that
is to say, one notice for each household of two
adult family members.

3. Notice of the annual general meeting was sent by
post to all remaining members in the club.

11. I am satisfied that the omission to give notice to the life members was not deliberate in that no one in the club was aware that the computer had failed to print out the names and addresses of the life members until after the notices had been posted. If the failure to give notice to the life members was the only consideration, I think that the provisions of sub-s.(3) of s.539 would cast the onus on the applicant to show why an order invalidating the meeting should be made. However, as far as the persons admitted to family membership are concerned, I am satisfied that the decision not to give separate notice to each of those persons was taken deliberately and that the omission was not an accidental one. The course of sending one notice to the two adult members resident at each family membership household was not authorised by the articles. Accordingly, it seems to me that the onus lies on those who resist an order invalidating the meeting to show why such an order should not be made.

12. But in any event, no order may be made by a court under s.539 unless the court is satisfied in accordance with sub-s.(6)(c) in every case that no substantial injustice has been or is likely to be caused to any person. The use of the double negative does not make paragraph (c) particularly easy to follow, but I take it to mean that an order may be made under the section only if the court is satisfied, bearing in mind where the onus lies, that the effect of an order would not be to cause substantial injustice to any person. The provisions of s.366 of the New South Wales Companies Act 1961 which were similar to those of s.539 were considered by Bowen C.J. in Equity, as he then was, in Re Compaction Systems Pty. Limited 1976 2 NSWLR p 477. In that case his Honour observed that the range of matters covered by the section was very wide and it related amongst other things to any omission, defect, error or irregularity whereby a breach of the provision of the Act had occurred or there had been default in the observance of the articles. At p.493 his Honour said:

"The whole purpose of the section is to empower
the Court to make orders in such cases, where
there has been an interference with or failure to
observe the rights of members or creditors."

His Honour went on to say that by the word "injustice" the section meant something more than a member having a right to notice of a meeting not having received such notice. His Honour continued:

"In my view the word "injustice" in this provision
requires the Court to consider any real, and not
merely insubstantial or theoretical, prejudice
which will be suffered by, for example, a member
by the making of an order, and to weigh this in
the scales against the prejudice to the company,
other members and creditors, if an order be not
made. In other words, it is insufficient to show
that there may be some prejudice to a member, if
on a consideration of the whole matter, the
overwhelming
weight of justice, as it were, is in
favour of making the order: see Re Australian
Continental Resources Ltd. (1976) 10 ACTR 19 pp
33-34, per Blackburn J.; see also Re Castlereagh
Securities Ltd. and the Companies Act (1973) 1
NSWLR 624. An example of the type of injustice to
a member which would lead the court to refuse a
validating order under s.366(3) is provided by an
irregularity in the calling of a meeting where the
business for discussion was the expulsion of a
member and he received an insufficient notice of
the meeting."

I refer also to the decision of Blackburn J., as he then was, in Re Australian Continental Resources Ltd. where his Honour said at pp 33 to 34:

"In my opinion the task of the Court, in complying
with paragraph (e), will not be complete merely
upon its satisfying itself that the order proposed
would not cause prejudice (in the sense indicated)
to any person of the classes mentioned. Such an
order may well do so. Prejudice is not the
criterion; justice is; and justice may require
that the prejudice to one party if the order were
made be balanced against the respective prejudice
to other parties if the order were not made."

13. Accepting and applying those principles, I think it desirable to go straight to the discretionary aspect of "substantial injustice". The applicant, as I have pointed out, is neither a life member, nor a member to whom family membership applies. Although I accept that she did not receive actual notice of the meeting, the evidence does not support a finding of any failure to take the necessary steps to give the requisite notice to the applicant. Mr. Wignall must be taken to have included a notice to her amongst the 6,691 notices dispatched by post on 18 September 1986, and deemed by Article 57 to have been delivered in the ordinary course of post.

14. No member who has been admitted to family membership has sought to put evidence before the Court that he or she failed to receive notice of the meeting, whether by reason of the journal getting to the hands of a partner where it stayed without disclosure, or for any other reason. The only life member who sought to complain about what happened was Mr. Henry Ernest Lawrence who heard about the meeting from other members, saw the advertisement in the Canberra Times and, in fact, attended the meeting. The advertisement was a prominent one and it is well known that the newspaper has a wide readership in a very literate community.

15. In my view, the failure to give notice to the life members and to each individual member admitted to family membership resulted in no substantial injustice and proper steps were taken, in my view, to give notice to all the other members.

16. I turn now to the question of voting methods. A further consideration on the question of discretion relates to the voting method adopted at the annual general meeting. It was argued, although I suspect somewhat faintly argued in the end, that the articles and by-laws of the club obliged to the use of what was called the proportional representation system of voting. It was argued with more vigour that failure to give notice to all members deprived Mr. Fry (and also Mrs. Grassby, as I understand it) of the chance of having the numbers to convince the meeting that the proportional representation system should have been adopted.

17. Whilst this latter proposition is not beyond the realm of speculative possibility, it falls well short of a likelihood. As to the former, I am not only convinced that it is incorrect as a matter of law, I am convinced that the converse principle of law is correct, that is to say, that the articles of association in their present state compel the counting of votes cast in an election for directors other than by means of a proportional representation method. Whether the method prescribed is correctly designated as the first past the post system is not necessary for me to decide. It was common ground that Article 23(a) applied to the election that was held. Article 23(a) provides as follows:

"23. In the event of a ballot being taken for the

election of Directors those nominees, if any,
delcared elected shall be deemed to be first
elected and thereafter -

(a) In the event that there are more than three
nominations in respect of members not
nominated by the Australian Labor Party (ACT
Branch) then the three of such candidates
receiving the greatest number of votes cast
for such candidates so nominated shall be
declared elected."

18. In Mulcahy v. Payne & Others [1920] HCA 30; (1920) 27 CLR 470 the High Court dealt with the provisions of legislation relating to elections to the Senate which were similar in some respects to the article under consideration. On page 479 of the report, after referring to the Senate Election Act 1903 which provided for election of those candidates "who receive the greatest number of votes", the Court went on to say this:

"When that Act became law the Commonwealth
Electoral Act 1902 prescribed a different system
of election from that now in force. Under the
earlier system each voter was entitled to record
one vote for each of a number of candidates
corresponding with the number of vacancies to be
filled. If, for instance, there were three
vacancies to be filled, each elector was entitled
to vote for three candidates, giving no more than
one vote to each candidate for whom he voted.
Every vote given by any elector had the same
value, and the result was ascertained by adding up
the votes cast for each candidate, the three
candidates who obtained the greatest number of
votes being elected."

19. Although the ballot paper to which I have already referred in the instant case makes provision for the preference of voters, in my view the decision of the High Court makes clear that a provision for election of a candidate "receiving the greatest number of votes" excludes any system of proportional representation whereby such votes may be counted.

20. I turn now to the failure to give notice of meeting within due time. At the end of argument, when addressing in reply, counsel for the applicant drew my attention to the fact that the date of the posting of the journal, namely, 18 September 1986, did not allow for the 28 days clear notice required by Article 35. No one had previously sought to rely on this failure to comply with the articles and no issue arose either on the affidavit material, nor during the hearing until that stage as to the possibility of any injustice to any person being occasioned thereby, and I am positively convinced that it has in fact not resulted and is not likely to result in any injustice to any person.

21. Lastly, I deal with the question of the standing of the applicant. An order invalidating a meeting under section 539(3) may be made on the application "of the person concerned, a person entitled to attend the meeting or the Commission". Whilst the present applicant is a person entitled to attend the meeting, I doubt, without deciding the point, whether she is "the person concerned". An order under s.539(4) may be made on the application of "any interested person". I would be prepared to accept that the applicant, as a member, is an interested person. However, there is no evidence that the applicant is in any way prejudiced by the events which took place, and in any event although she did not receive notice of the meeting, I am satisfied that a notice was dispatched to her in accordance with the articles. She does not depose to any facts from which the Court is asked to infer that her position was adversely affected by the failure to give notice to the other classes of members.

22. I have already observed that no life member apart from Mr. Lawrence and no member admitted to family membership has sought to complain of non-receipt of notice. I accept that Mr. Fry and Mrs. Grassby may well feel that non-compliance with the provisions of the articles relating to notice affected the outcome of the election, but I bear in mind that neither of those persons is an applicant to the court and no steps have been taken to join either of them as an applicant.

23. Taking the case as a whole, the club is, for Canberra, a relatively large one and functions primarily for social purposes. No one's proprietary rights have been affected by the election which took place and none would, in my view, be affected if the Court were to order a new election. The cost of a new election is not insubstantial and is in the region of $5,000 to $6,000. I was told from the bar table that the employment of senior staff of the club may be affected by the respondents continuing to hold office as directors but there is no evidence to that effect.

24. In my view justice does not require a declaration that the annual general meeting be void, nor an order to the effect that a fresh election of directors be held. The summons will be dismissed.

25. I turn to the question of costs. The applicant has been successful in proving the procedural irregularities. The respondents have been successful on the discretionary aspects. Costs do not necessarily follow the event. The case has some elements which point towards an order that all persons bear their own costs. On the other hand it is clear that it was the conduct of those for whom the club is responsible which brought about the situation which enabled the application to be launched. I think that the club should bear some share of the overall costs. The order I make is that the club is to pay one half of the costs of the applicant and of the respondents, otherwise all parties are to bear their own costs.