Central Exchange Ltd (ACN 000 742 843) v Rivkin Financial Services Ltd (ACN 061 287 045) [2004] FCA 1789 (20 October 2004)

Last Updated: 16 March 2005

FEDERAL COURT OF AUSTRALIA

Central Exchange Ltd (ACN 000 742 843) v Rivkin Financial Services Ltd (ACN 061 287 045) [2004] FCA 1789

CENTRAL EXCHANGE LIMITED (ACN 000 742 843) v RIVKIN FINANCIAL SERVICES LIMITED (ACN 061 287 045)

N1473 OF 2004





EMMETT J
20 OCTOBER 2004
SYDNEY

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	N1473 OF 2004

BETWEEN:	CENTRAL EXCHANGE LIMITED (ACN 000 742 843) PLAINTIFF
AND:	RIVKIN FINANCIAL SERVICES LIMITED (ACN 061 287 045) DEFENDANT
JUDGE:	EMMETT J
DATE OF ORDER:	20 OCTOBER 2004
WHERE MADE:	SYDNEY

THE COURT ORDERS THAT:

1. The plaintiff’s application for leave to amend be refused.

2. The plaintiff pay the defendant’s costs thrown away by reason of the application for amendment.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	N1473 OF 2004

BETWEEN:	CENTRAL EXCHANGE LIMITED (ACN 000 742 843) PLAINTIFF
AND:	RIVKIN FINANCIAL SERVICES LIMITED (ACN 061 287 045) DEFENDANT
JUDGE:	EMMETT J
DATE:	20 OCTOBER 2004
PLACE:	SYDNEY

REASONS FOR JUDGMENT

1 The plaintiff, Central Exchange Limited (‘Central’), seeks leave to amend the current form of the originating process to include prayers for two additional declarations in addition to the declaration sought in prayer 1. In prayer 1 of the current form of the originating process, the plaintiff seeks a declaration that the purported postponement by the directors of the meeting called by Central for 3 November 2004 is invalid by reason of two matters.

2 First, it is said that clause 13.4 of the Constitution (‘the Constitution’) of the defendant, Rivkin Financial Services Limited (‘the Company’), pursuant to which the postponement was purportedly effected, cannot, as a matter of law, apply to a meeting convened pursuant to s 249F of the Corporations Act 2001 (Cth) (‘the Act’). Secondly, it is said that the present directors of the Company had a material personal interest in the subject matter of the postponement because it sought their removal and that, therefore, they were not entitled to participate in any quorum considering that question. Since there was no quorum present on that basis, the resolution was invalid. I have heard argument as to those matters, including detailed written and oral argument on the question of whether, as a matter of law, the directors of a company can, pursuant to a provision of the company’s constitution, postpone a meeting convened pursuant to s 249F.

3 The proposed further declarations are:

•	that a power to postpone a meeting pursuant to s 249F of the Act cannot be exercised to the extent that it would frustrate a proper purpose of a meeting called pursuant to s 249F; and
•	that in light of the facts that have transpired, the purported resolution of the Board (as defined in the Constitution) to postpone the meeting called by Central would frustrate a proper purpose of that meeting.

4 It is said that the purpose was to permit the members of the Company to consider the composition of the Board of Directors in circumstances where the Company has, and is undertaking, material transactions under the management of what is described as ‘unelected directors’. On one view, the proposed amendment does not raise a new matter: if all that is intended to be raised is that Central has called a meeting pursuant to s 249F to be held on 3 November 2004 and the postponement of that meeting would frustrate the purpose of Central to have the question of the composition of a Board of the Company discussed on 3 November 2004, the amendment is unnecessary and I have heard the argument on that question.

5 On the other hand if, as I understand the language of the proposed amendment, it is intended to suggest something beyond that pure legal question, I consider that it is inappropriate to permit the amendment at this stage. It appears to be suggested that deferring consideration of the question of the Board’s composition for some 20 days would frustrate a proper purpose.

6 If the purpose of the s 249F meeting is simply to permit the members of the Company to consider the composition of the Board, in circumstances where the Company has been undertaking material transactions, that question can just as easily be considered and discussed on 29 November 2004, as proposed by the Board, as it could be on 3 November 2004. However, if it is said that the delay in discussing that question is in some way material to the purpose of Central, a substantial inquiry into the financial position and the history of the dealings of the Company would be involved.

7 Assuming, as is required for present purposes, that there is otherwise power to postpone the meeting, it must be borne in mind that the directors have exercised a power conferred on them by the Constitution of the Company. It must also be borne in mind that the management of the Company is vested in the directors for the time being. There has been no suggestion that the present directors were otherwise than properly appointed to that office.

8 The matters that are intended to be raised concern dealings by the Company in the shares of Drillsearch Energy Limited over a period of several months. I have no knowledge as to whether those dealings are out of character so far as the Company is concerned. I have no knowledge as to the materiality of those dealings in relation to the affairs of the Company generally. There is, however, no suggestion that they are otherwise than in the ordinary course of the Company’s business and Central specifically eschews any suggestion of any impropriety on the part of the directors in postponing the meeting, in the sense of an abuse of power.

9 This matter was fixed for hearing on the basis of considerable urgency. I fixed the matter for hearing on Tuesday, 12 October 2004, in circumstances where I am due to commence hearing substantive proceedings on 25 October 2004, involving allegations of insider trading and oppressive conduct in relation to the affairs of the Company. The Company is the plaintiff in that proceeding. The defendants in that proceeding are companies associated with Central.

10 This proceeding was not commenced until 8 October 2004 and the parties prepared written submissions on the basis of the issues as they were then understood. I heard the evidence and argument on 12 October 2004. The argument had not finished by about 4:30pm. Consequently, I invited the parties to conclude on the following day. Counsel were not available and I therefore permitted the matter to be completed by further written submissions. Those written submissions were compiled and filed and served in accordance with directions and the matter came back before me on Friday, 15 October 2004.

11 The submissions that were prepared prompted an inquiry from me, on that day, as to whether it was suggested that there was an allegation that the terms of a resolution passed by the directors had the effect of frustrating an object of the s 249F meeting. I invited the parties to make further submissions in relation to that question if they wished to do so. As a consequence of that invitation the matter was listed again for further argument today and I have heard further argument during the course of the day.

12 It was in the course of that argument that Central sought to enlarge the argument as to possible frustration of the purpose of the meeting. In particular, Central sought leave to rely on an affidavit of Mr William Matthew Johnson sworn on 20 October 2004, deposing to material relating to apparent transactions by the Company in the shares of Drillsearch Energy Limited. Senior counsel for the Company, in opposing the proposed amendment, indicated that, in order to deal with those sorts of matters, considerable further inquiry would be necessary and evidence is likely to be adduced on the question of whether there could be said to be a frustration of the proper purpose of Central in calling the proposed meeting. It seems to me to be unlikely that I would be able to hear that evidence in time to be able to give a decision that would be convenient for the parties in relation to the meeting of 3 November 2004. The Company has, of course, announced to ASX that the meeting has been postponed. The validity of the postponement is the very issue in question in the proceeding.

13 If a decision had not been given by 3 November 2004, the resulting chaos would be unfortunate in that Central would legitimately be entitled to press its claim that the postponement was invalid. On the other hand, the directors would press the Company’s claim that their resolution for postponement was effective. One slightly unfortunate, although probably not particularly relevant fact, is that the resolution for postponement has gone through several stages of development. There have, in fact, been three separate occasions when purported postponements have occurred and it was the form of one of those resolutions that prompted my invitation last Friday to make further submissions.

14 I am firmly of the view that it would be inappropriate at this stage in the litigation to permit Central to raise an issue that goes beyond the mere proposition that its purpose was frustrated by deprivation of the opportunity to have discussion on the day that it chose. I propose to refuse the plaintiff's application for leave to amend.

I certify that the preceding fourteen (14) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Emmett.

Associate:
Dated: 15 March 2005

Counsel for the Plaintiff:	N. Cotman SC
Solicitor for the Plaintiff:	Deacons
Counsel for the Defendant:	J T Gleeson SC, J.R.J. Lockhart, J Horowitz
Solicitor for the Defendant:	Atanaskovic Hartnell
Date of Hearing:	12, 20 October 2004
Date of Judgment:	20 October 2004