In the matter of National Roads and Motorists' Association Ltd [2003] FCAFC 206 (27 August 2003)

Last Updated: 27 August 2003

FEDERAL COURT OF AUSTRALIA

In the matter of National Roads and Motorists' Association Ltd

[2003] FCAFC 206

CORPORATIONS - appeal from failure to grant relief under s 1322(4) of the Corporations Act 2001 (Cth) - whether to extend time for voting for election of directors contrary to constitution of mutual organisation - where new constitution to be proposed during election - where possible potential cost saving - where no contradictor - no miscarriage of discretion

Corporations Act 2001 (Cth) s 1322

House v The King [1936] HCA 40; (1936) 55 CLR 499 followed

Norbis v Norbis [1986] HCA 17; (1985-1986) 161 CLR 513 cited

IN THE MATTER OF NATIONAL ROADS AND MOTORISTS' ASSOCIATION LIMITED ACN 000 010 506

N 951 of 2003

RYAN, FINKELSTEIN and GYLES JJ

SYDNEY

27 AUGUST 2003

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	N 951 of 2003

On Appeal from a Single Judge of the Federal Court of Australia

IN THE MATTER OF NATIONAL ROADS AND MOTORISTS' ASSOCIATION LIMITED ACN 000 010 506

	NATIONAL ROADS AND MOTORISTS' ASSOCIATION LIMITED ACN 000 010 506 Appellant
JUDGES:	RYAN, FINKELSTEIN and GYLES JJ
DATE:	27 AUGUST 2003
PLACE:	SYDNEY

REASONS FOR JUDGMENT

RYAN and GYLES JJ:

1 This is an application for leave to appeal by National Roads And Motorists' Association Limited ("NRMA") from a refusal by Jacobson J to exercise the discretion provided for by s 1322(4)(d) of the Corporations Act 2001 (Cth) ("the Act") (In the matter of National Roads and Motorists' Association Limited [2003] FCA 842). The precise order sought was:

`Pursuant to sub-section 1322(4)(d) of the Corporations Act 2001, that the time for the fixing of the closing of voting, pursuant to Rule 67 of the Plaintiff's constitution be extended to on or before 28 November 2003, being a time after the date fixed for the holding of the Plaintiff's 2003 Annual General Meeting.'

2 There is a question as to whether leave to appeal is necessary as it is arguable that the primary decision is final. In any event, full argument was heard as on the appeal. At the conclusion of argument, orders were made unanimously granting leave to appeal if and insofar as leave was necessary and (by majority) dismissing the appeal, with reasons to be delivered later. These are those reasons.

3 The application to Jacobson J was made ex parte with no evidence that notice of it was given to any party. One of the candidates nominated for election learned of this appeal and complains of the procedure adopted. There is a question as to whether a proceeding of this type which affects members' rights in relation to voting at an election for which nominations have already been called should be determined in the absence of a proper contradictor. The same question applies to this appeal. We shall return to those questions in due course.

4 The Constitution of NRMA ("the Constitution") provides for an election for half of the Board of Directors ("the Board") to take place this calendar year. Rule 67 provides as follows:

`If the number of candidates is greater than the number required to be elected an election shall be conducted with the voting at that election to close on a date and at a time to be fixed in each odd-numbered year by the Board of Directors, such date being not later than one day before the date fixed for the holding of the annual general meeting. The time and date for the close of the election shall be set out in the election material prepared for the relevant election period.'

5 On 26 June 2003 NRMA published a notice calling for nominations for election as a director, which could be lodged from Tuesday 1 July 2003 until 5 pm on Thursday 31 July 2003. The notice said that if a member wished to receive a nomination form and an accompanying information package, it was available from the office of the appellant. That information package included a copy of the election rules and protocols. The indicative election timetable which was included in that material was as follows:

`Nominations open	1 July 2003
Group Registration opens	1 July 2003
Nominee Information Day	23 July 2003
Nominations close	31 July 2003 at 5.00 pm
Group Registration closes	31 July 2003 at 5.00 pm
Candidate Information Day	28 August 2003
Membership Eligibility Date (ie Register cut-off)	9 October 2003
Ballot opens	15 October 2003
Internet Voting Commences	15 October 2003 at 9.00 am
Ballot closes	21 November 2003 at 5.00 pm
Ballot result	28 November 2003 (approximately)'

6 The election rules make provision for individual nominations and provide a procedure for candidates who wish to be identified as part of a group. The rules provide for candidate and group biographies to be submitted and circulated with the special election material mail-out, and to be available on the website. The Constitution requires the election rules to include provisions in relation to disclosure concerning election campaign contributions and payments made on behalf of candidates, and rules have been formulated to give effect to those provisions.

7 On 1 August 2003 notice was published of an extension of the closing date for nominations to 5 pm on Thursday 28 August 2003, which was said to be a decision of the Board in response to a member who had, the day before, confirmed his intention to legally challenge the application of r 64A of the Constitution, on the basis of age discrimination.

8 The evidence is that nominations have been received from twenty-eight individuals, including three group nominations of six members each. Thus, the number of candidates is greater than the number required to be elected.

9 On 21 May 2003 the Board resolved to hold the 2003 annual general meeting at the Sydney Entertainment Centre on 11 November 2003. On 30 July 2003 that decision was rescinded and it was resolved to hold the meeting on 8 October 2003. By that time, the Board had decided to put a proposed new Constitution ("the proposed Constitution") to members for their approval at the 2003 annual general meeting (whenever in 2003 it should take place).

10 The final form of the proposed Constitution has not been settled, but the evidence is that the key features will include the following:

`(a) reduce the number of directors to 9 with effect from the date on which the Proposed Constitution is approved or shortly thereafter and provide a mechanism to determine which 5 of the 14 directors in office on that date are to retire;

(b) provide for the retirement of all of the directors then in office at the 2005 Annual General Meeting and at the Annual General Meeting held every three years thereafter, with effect from the date on which the Proposed Constitution is approved (thus obviating the need to conclude the 2003 half board election process);

(c) provide for election of all directors on a regional basis with effect from the 2005 Annual General Meeting, that is, that each of the 9 directors is to be elected by members residing in 9 regions of New South Wales and the Australian Capital Territory, the boundaries of which are to be determined by an independent Boundaries Commission constituted in accordance with the Proposed Constitution;

(d) render a person who has served as a director for a period in excess of 8 years, commencing on the date on which the Proposed Constitution is adopted, ineligible to be a candidate for election as a director; and

(e) empower the Board to determine the method of voting at elections of directors, including optional or full preferential voting and "first past the post" voting.'

11 In mid-July 2003 a letter was sent to members with the July/August edition of NRMA's publication "The Open Road", which included the following:

`At our June Board meeting...we unanimously agreed to ask members to vote on the following changes at our next Annual General Meeting...in October:

* to enshrine the company's mutual status

* to reduce the Board's size to 9 directors

* to move to regional elections for Directors

* to hold full Board elections every three years.'

12 According to the Constitution, the directors who are declared to be elected take office at the conclusion of `the election period', which means (in this case) the period commencing with the time of the close of nominations (for election of directors), ie, 28 August 2003, and concluding with the beginning of the first Saturday in December.

13 The reason advanced in evidence for the orders sought was as follows:

`27. NRMA wishes to put the Proposed Constitution to members at the 2003 Annual General Meeting on 8 October 2003, prior to the conclusion of the election period. The reason for this is, if the Proposed Constitution is adopted, it will immediately bring about significant costs savings. These savings will arise because:

(a) the adoption of the Proposed Constitution will obviate the need to conclude the 2003 half board election process commenced under the current Constitution, and in particular, the printing and posting of materials to be sent to members and the processing of votes.

(b) a smaller board will result in:

(i) a reduced cost of servicing the board (being such costs as travel, courier and fax expenses, production of board papers and training, etc). These costs are presently identified at approximately $5,000 per board member per annum; and

(ii) a reduction in directors' fees paid by the company. Each director currently receives board fees of $35,000 per annum and generate a superannuation expense of $4,550. Directors who sit on committees receive additional remuneration.

28. NRMA is aware that the Proposed Constitution may be rejected by members and that, in that event, the election process must be carried through to its conclusion. In light of this possibility, NRMA intends to implement, prior to the 2003 Annual General Meeting, all stages in the electoral process up to, but not including, the point of the printing and dispatch of the election packs. If the Proposed Constitution is not adopted, the remaining steps in the electoral process will be activated as soon as possible after the result of the resolution to adopt the Proposed Constitution is known, so that the results of the ballot could be declared on 28 November 2003 (as currently planned) and allow the directors so elected to take office on 6 December 2003, as required by the operation of Rules 1(h) and 78 of the Constitution.

29. In light of the possibility of slippage in the election timetable and so as to permit a minimum period of one week for the counting of votes prior to 6 December 2003, NRMA has sought, in the orders identified in the Application, to extend the date for the closing of voting in the 2003 half board election to 28 November 2003, rather than the date of 21 November 2003 identified in the paragraph 17. However, it remains NRMA's intention to conclude the voting on 21 November 2003.'

There was evidence that the short-term cost savings would be in the order of $2.8 million, mainly achievable if the mail-out to members for the commencement of the ballot were not required as a result of the adoption of the proposed Constitution.

14 Section 1322 of the Act (so far as is relevant) is as follows:

`(4) Subject to the following provisions of this section but 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:

...

(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 ended 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.

...

(6) The Court must not make an order under this section unless it is satisfied:

...

(c) in every case--that no substantial injustice has been or is likely to be caused to any person.'

Primary Decision

15 After setting out the salient facts, Jacobson J considered whether there was power to make the order sought. He concluded that he did not need to decide the question of power because he had come to the view that, even if he had the power, it was not a case in which he would exercise it. His Honour expressed two reasons for deciding not to exercise his discretion in favour of the grant of relief. The first was as follows:

`42 The first is that I do not know one way or the other whether there is likely to be a cost saving. This will only occur if a second mail-out is not required. That depends on whether the special resolution required for the adoption of the proposed constitution is passed at the Annual General Meeting. This of course requires a 75 per cent majority vote.

43. The members have not yet been provided with the proposed constitution. Nor, as I have said, is it entirely clear that they are aware that if the proposed constitution is adopted there will be no half-board election.

44. Accordingly, I do not have any evidence of the likely reaction from members to the Proposed Constitution.

45. It seems to me that a departure from the provisions of the Constitution ought not to be made lightly. I do not see why I ought to exercise my discretion to make an order on the mere possibility that there will be cost savings.'

16 The second reason was that his Honour was not satisfied that no substantial injustice was likely to be caused to any person, his conclusion being:

`... the proposal involves a departure from the Constitution in circumstances in which I cannot be satisfied that the members or the candidates would not suffer substantial injustice.'

His Honour had referred to the authorities which established that NRMA had the onus of satisfying s 1322(6)(c). His Honour observed that nominations had been received, but that he did not know whether members or the candidates were aware that, if the proposed Constitution were adopted, there would be no half board election, nor whether they were aware that, if the proposed Constitution were not adopted, voting for the half board election would close at a date later than that fixed by r 67. His Honour said that, in the absence of any evidence of any reaction to the proposal from members or candidates, he could not be satisfied that NRMA had discharged its onus.

Arguments on Appeal

17 The submission on behalf of NRMA is that Jacobson J fell into error in the following respects:

`(a) So far as the discretion under s 1332[sic](4)(d) is concerned, his Honour imposed two impermissible glosses:

(i) That relief should not be "lightly" granted, at least where the application assumed contravention of a corporation's constitution; and

(ii) That relief should not be granted in aid of a benefit which might not certainly accrue.

(b) So far as the prerequisite satisfaction required by s 1332[sic](6)(c) is concerned, his Honour failed to engage in the analysis required by that provision, instead effectively declining to consider the application for want of a contradictor.'

18 In support of the first proposition, it was argued that an impossible onus was imposed upon the appellant as, short of commissioning a poll, the likely result of the annual general meeting could not be known, yet his Honour appears to have treated the fact that the reason for seeking relief involved a contingency as fatal to the application. There is no reason to read down the scope of the section so as to require that the application be made with a view to securing a benefit which is certain to come to pass. Prospective applications are plainly contemplated and may well involve an element of contingency.

19 In relation to the statement that the departure from the provisions of the Constitution ought not to be made lightly, it was submitted that this was an unwarranted gloss, as if the discretion comes to be exercised, it is against a background of satisfaction of the requirements of s 1322(6). In those circumstances, the Court does not start from any predisposition against relief such as his Honour's comment reflects. Reference was made to cases which have said that s1322, being remedial, should be applied liberally.

20 It was submitted that the approach to s 1322(6) had been flawed as there was no proper consideration of substantial injustice. Analysis of the Constitution and particularly the election rules would clearly show that no substantial injustice could conceivably occur. There could be no complaint about putting a resolution to amend the Constitution to the members.

Decision on Appeal

21 Section 1322(4)(d) confers an unfettered discretion upon the Court subject to the requirement of s 1322(6). As was said by Dixon, Evatt and McTiernan JJ in House v The King [1936] HCA 40; (1936) 55 CLR 499 at 504-5:

`The manner in which an appeal against an exercise of discretion should be determined is governed by established principles. It is not enough that the judges composing the appellate court consider that, if they had been in the position of the primary judge, they would have taken a different course. It must appear that some error has been made in exercising the discretion. If the judge acts upon a wrong principle, if he allows extraneous or irrelevant matters to guide or affect him, if he mistakes the facts, if he does not take into account some material consideration, then his determination should be reviewed and the appellate court may exercise its own discretion in substitution for his if it has the materials for doing so. It may not appear how the primary judge has reached the result embodied in his order, but, if upon the facts it is unreasonable or plainly unjust, the appellate court may infer that in some way there has been a failure properly to exercise the discretion which the law reposes in the court of first instance. In such a case, although the nature of the error may not be discoverable, the exercise of the discretion is reviewed on the ground that a substantial wrong has in fact occurred.'

22 As Mason and Deane JJ said in Norbis v Norbis [1986] HCA 17; (1985-1986) 161 CLR 513 at 520, `wrong principle' in that passage refers to not adhering to a binding rule. There is no basis for taking that view in the present case. Also, there is no basis for thinking that Jacobson J made any mistake of fact. Further, the reasons below make clear how the result was reached. In any event, the result is not unreasonable or plainly unjust. The only mandatory requirement non-observance of which would vitiate the exercise of discretion in this case is that imposed by s 1322(6). There is no other mandatory procedure or consideration. Thus, alleged failure to take something else into consideration would not entail a miscarriage of the discretion. In our opinion, it is plain beyond argument that his Honour did not ignore the statutory mandatory condition - indeed, he expressly took it into account. In any event, he refused relief.

23 Taking a factor into consideration will only vitiate the exercise of discretion if consideration of that factor is forbidden by the statute. That could only be the case here if such a factor was completely outside the purview of the discretion when the purposes of the Act as a whole, and the section in context, are construed. It is plain that the factors which his Honour did weigh up were not extraneous to the unfettered discretion conferred by the section.

24 We do not agree that Jacobson J regarded uncertainty of advantage as fatal to the application or that there was an impermissible gloss on the section in that or any other respect. The starting point is that a case must be made for altering the effect of a provision of the Constitution. An assessment of the nature and likelihood of the claimed advantage in doing so is surely a proper part of the balancing process which is to be undertaken.

25 The attack upon his Honour's treatment of s 1322(6) is misconceived. As we have indicated, if his Honour had been disposed to grant relief, he would have been bound to comply with that provision. His Honour was quite entitled to exercise his discretion against the grant of relief without taking account of it at all. In any event, it was certainly not irrelevant to come to the view that, on the material before him, he was not satisfied that the hurdle imposed by the section would be surmounted. The issue of substantial injustice was not irrelevant to the exercise of discretion.

26 The situation in issue has arisen because the current directors of NRMA have decided upon the unusual course of proposing a constitutional change affecting the election of directors in the middle of a current election. They desired that NRMA be relieved from compliance with a provision of its Constitution to facilitate that proposal. NRMA failed to persuade Jacobson J to exercise that discretion in its favour. Other minds may have come to a different conclusion. That is no basis for overturning the decision. We therefore decided that, if leave is required, it should be granted and that the appeal should be dismissed.

27 That conclusion made it unnecessary to decide the question of parties. In our opinion, there is much to be said for the view that it would be imprudent to contemplate the grant of this relief in the absence of a contradictor. The right that a member of a mutual organisation has to vote upon the election of directors according to the Constitution is most significant. Another important right which a member has is to be nominated for office as a director. There are more candidates than there are vacancies in the forthcoming election. There is thus an electoral contest. It is notorious that elections to the Board of NRMA have been hotly contested for many years. The Court has little appreciation of all of the practical implications of what is proposed. It would have been materially assisted by the presence of a potential contradictor with knowledge of the affairs of NRMA.

I certify that the preceding twenty-seven (27) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justices Ryan and Gyles.

Associate:

Dated: 27 August 2003

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	N 951 of 2003

On Appeal from a Single Judge of the Federal Court of Australia

IN THE MATTER OF NATIONAL ROADS AND MOTORISTS' ASSOCIATION LIMITED ACN 000 010 506

NATIONAL ROADS AND MOTORISTS' ASSOCIATION LIMITED ACN 000 010 506 Appellant

JUDGES:	RYAN, FINKELSTEIN & GYLES JJ
DATE OF ORDER:	27 AUGUST 2003
WHERE MADE:	SYDNEY

REASONS FOR JUDGMENT

FINKELSTEIN J:

28 Recently I criticised Victorian practitioners for bringing applications under the Corporations Act 2001 (Cth) without notice to persons who may be affected by the result: In the matter of Beckley Forge Pty Ltd (Administrators Appointed) [2003] FCA 523. It turns out that my criticism was too narrow. It should not have been confined to Victorians. Perhaps some of the difficulties that have arisen in this case would have been avoided if notice of the application had been given to members of National Roads and Motorists' Association Limited (NRMA) known to be opposed to the existing board or to candidates who are standing for election. One of their number could have been heard and, if necessary, joined in a representative capacity.

29 Be that as it may, I regret to say that I am unable to agree with the other members of the court on the proper disposition of this appeal. I accept without question the need to exercise caution in setting aside a discretionary decision. Rarely will an appeal against an exercise of discretion be upheld. But here I am of opinion that there is sufficient error in the approach taken by the judge or, at any rate, that the result is so unreasonable as to warrant the reversal of the orders made below.

30 The judge said that a departure from the provisions of NRMA's Constitution ought not to be made lightly. This seems to suppose that the requirements of a company's constitution are of uniform importance. Plainly that is not so. For example, there is usually no magic in the timetable for an election. In my view the judge erred in principle in proceeding upon the assumption that the timetable should only be altered for a weighty reason. In some instances that may be the proper approach. It is not, however, a universally correct proposition. It all depends upon the circumstances. And the judge did not consider whether the circumstances mandated his approach.

31 Then the judge said that he would not exercise his discretion "on the mere possibility that there will be costs savings". Here again I think he fell into error. If the order had been made, $2.8 million could potentially have been saved. This is a significant sum. It is all the more significant to an organisation whose financial position is not good. That there was only a "mere possibility" of saving a large sum is hardly to the point. The board would not be acting properly if it failed to take steps that may reduce costs. Perhaps the judge's approach would have been correct if the possibility of savings was highly speculative. On the evidence, however, he could not have come to that view.

32 In these circumstances I would have allowed the appeal to avoid the injustice that may result from requiring NRMA to follow the election timetable in its Constitution.

I certify that the preceding five (5) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Finkelstein.

Associate:

Dated: 27 August 2003

Counsel for the Appellant:	N Hutley SC and K Smark
Solicitor for the Appellant:	Corrs Chambers Westgarth
Date of Hearing:	14 August 2003
Date of Orders:	14 August 2003
Date of Reasons for Judgment:	27 August 2003