[2012] WASC 121 JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA IN CIVIL CITATION : NORTHWEST CAPITAL MANAGEMENT -v- WESTATE CAPITAL LTD [2012] WASC 121 CORAM : EDELMAN J HEARD : 12-15 MARCH 2012 DELIVERED : 5 APRIL 2012 FILE NO/S : CIV 1118 of 2012 BETWEEN : NORTHWEST CAPITAL MANAGEMENT First Plaintiff GRANITE CREEK INVESTMENTS PTY LTD Second Plaintiff BRIAN JAMES GODFREY SOPHIE JANE RAVEN Third Plaintiffs BIMBURY SUPER PTY LTD Fourth Plaintiff AND WESTATE CAPITAL LTD First Defendant BLUE ANCHOR PTY LTD Second Defendant McLARTY (NWDF) PTY LTD Third Defendant Document Name: WASC\CIV\2012WASC0121.doc (DJ) Page 1
Transcript
[2012] WASC 121
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CIVIL
CITATION : NORTHWEST CAPITAL MANAGEMENT -v- WESTATE CAPITAL LTD [2012] WASC 121
CORAM : EDELMAN J
HEARD : 12-15 MARCH 2012
DELIVERED : 5 APRIL 2012
FILE NO/S : CIV 1118 of 2012
BETWEEN : NORTHWEST CAPITAL MANAGEMENT First Plaintiff GRANITE CREEK INVESTMENTS PTY LTD Second Plaintiff BRIAN JAMES GODFREY SOPHIE JANE RAVEN Third Plaintiffs BIMBURY SUPER PTY LTD Fourth Plaintiff AND WESTATE CAPITAL LTD First Defendant BLUE ANCHOR PTY LTD Second Defendant McLARTY (NWDF) PTY LTD Third Defendant
BETWEEN : BRIAN JAMES GODFREY SHANE EDWARD THOMPSON MARK JON KEENE Plaintiffs AND PAUL BERRESFORD First Defendant CHRISTOPHER STANLEY KAIN Second Defendant NORTHWEST PROPERTIES LTD Third Defendant BLUE ANCHOR PTY LTD Fourth Defendant McLARTY (NWDF) PTY LTD Fifth Defendant
Catchwords:
Corporations - General meeting - Validity of purported resolutions - Whether chairperson appointed - Requirement of chairperson for validity of general meeting - Whether meeting in such disarray that no valid resolutions passed - Whether proxy votes invalidly excluded - s 1322 Corporations Act - Whether irregularities substantive or procedural Corporations - Whether proxy appointment ineffective under s 250B of the Corporations Act if it is provided to a third party for delivery to the company - Whether proxies tabled prior to general meeting Trade practices - Conduct likely to mislead or deceive - Misleading or deceptive conduct in relation to voting process for purported resolutions and circulating resolution - Whether s 18 The Australian Consumer Law (sch 2 of the
Competition and Consumer Act 2010 (Cth) applies - Whether s 12DA of the Australian Securities and Investments Commission Act 2001 (Cth) applies - Meaning of 'engage in conduct' - Relevance of lack of evidence that any person was misled or deceived - Nature of injunctive relief under s 232 of The Australian Consumer Law and s 12GD of the Australian Securities and Investments Commission Act Trusts and trustees - Written circulating resolution - Whether power in Trust Deed for the removal of trustee by a circulating resolution - Nature of requirement for notice of meetings - Whether the same principle extends to requiring circulating resolutions to be provided to all unit holders Trusts and trustees - Whether implied term arises from a clause providing for removal of trustee for a power to appoint a new trustee - Powers under the Trustees Act 1962 (WA) to appoint a new trustee - History of powers to remove trustees and appoint new trustees Trusts and trustees - Trustees Act 1962 (WA) s 77(1) - Whether expedient to appoint a new trustee - Whether issue of units in Trust and stapled shares in company occurred for purpose of procuring voting support - Whether it is inexpedient, difficult or impracticable to appoint a new trustee in substitution for an existing trustee without the assistance of the Court - Considerations in exercise of discretion under s 77(1) - Rule against direction of trustee - Whether meeting of unit holders should be convened by Trustee - Powers of unit holders
Legislation:
Australian Consumer Law, s 2(2), s 18, s 232 Australian Securities and Investments Commission Act 2001 (Cth), s 12BAB, s 12DA, s 12GD Chancery Procedure Acts of 1850 and 1852, 13 16 Vict c35, c86, s 50 Company Law Review Act (1998) (Cth) Competition and Consumer Act 2010 (Cth), s 131A Corporations Act 2001 (Cth), s 11, s 249G, s 250A, s 250B, s 252B(1), s 252Z, s 253E, s 601ED(2), s 764(1)(ba), s 766B, s 766C, s 766E(1), s 1319, s 1322 Supreme Court Act 1935 (WA), s 25(6) Trustee Act of 1850 13 & 14 Vict c 60, cl 32 Trustee Act of 1852 15 & 16 Vict c 55, cl 9 Trustees Act 1962 (WA), s 7(1), s 7(3), s 77(1), s 77(2)
First Plaintiff : Mr M L Bennett & Mr M P Bruce Second Plaintiff : Mr M L Bennett & Mr M P Bruce Third Plaintiffs : Mr M L Bennett & Mr M P Bruce Fourth Plaintiff : Mr M L Bennett & Mr M P Bruce First Defendant : Mr M D Howard SC & Ms K F Banks-Smith Second Defendant : No appearance Third Defendant : No appearance
Solicitors:
First Plaintiff : Bennett & Co Second Plaintiff : Bennett & Co Third Plaintiffs : Bennett & Co Fourth Plaintiff : Bennett & Co First Defendant : Corrs Chambers Westgarth Second Defendant : No appearance Third Defendant : No appearance
COR 14 of 2012
Counsel:
Plaintiffs : Mr M L Bennett & Mr M P Bruce First Defendant : Ms K F Banks-Smith & Mr M Howard Second Defendant : Ms K F Banks-Smith & Mr M Howard Third Defendant : No appearance Fourth Defendant : No appearance Fifth Defendant : No appearance
Plaintiffs : Bennett & Co First Defendant : Corrs Chambers Westgarth Second Defendant : Corrs Chambers Westgarth Third Defendant : No appearance Fourth Defendant : No appearance Fifth Defendant : No appearance
Case(s) referred to in judgment(s): Alexander v Perpetual Trustees WA Ltd [2001] NSWCA 240 Ansett Transport Industries (Operations) Pty Ltd v Australian Federation of Air
Pilots [1991] 1 VR 637 Armitage v Nurse [1998] Ch 241 Ashburton Oil NL v Alpha Minerals NL [1971] HCA 5; (1971) 123 CLR 614 au Domain Administration Ltd v Domain Names Australia Pty Ltd (2004) 207
ALR 521 Australian Competition and Consumer Commission v Dataline.Net.Au Pty Ltd
(in liquidation) [2007] FCAFC 146 Australian Competition and Consumer Commission v Telstra Corporation Ltd
Cordiant Communications (Australia) Pty Ltd v Communications Group Holdings Pty Ltd [2005] NSWSC 1005; (2005) 55 ACSR 185
Deutsch v Deutsch [2011] VSC 345 Dwyer v Calco Timbers Pty Ltd [2008] HCA 13; (2008) 234 CLR 124 Elders Trustee and Executor Co v E G Reeves Pty Ltd (1987) 78 ALR 193 Elovalis v Elovalis [2008] WASCA 141 Ephstathis v Greek Orthodox Community of St George (1988) 13 ACLR 691 Fox v Percy [2003] HCA 22; (2003) 214 CLR 118 Fraser v NRMA Holdings Ltd (1995) 55 FCR 452 Glover v Willert (1996) 20 ACSR 182 Gouriet v Union of Post Office Workers [1977] UKHL 5; [1978] AC 435 Harlowe's Nominees Pty Ltd v Woodside (Lakes Entrance) Oil Co NL [1968]
HCA 37; (1968) 121 CLR 483 Hobkirk v Ritchie (1933) 29 Tas LR 14 In re Brockbank [1948] Ch 206 Johnstone v Johnstone (1902) 2 SR (NSW) Eq 90 Kelly v Wolstenholme (1991) 4 ACSR 709 Knox v MacKinnon (1888) 13 AC 753 Lachlan Reit Ltd v Garnaut [2010] VSC 399 Letterstedt v Broers (1884) 9 App Cas 371 McGellin v Mount King Mining NL (1998) 144 FLR 288 McLaughlin v Prince [2002] WASC 274 McLure v Mitchell (1974) 6 ALR 471 Miller & Associates Insurance Broking Pty Ltd v BMW Australia Finance Ltd
[2010] HCA 31; (2010) 241 CLR 357 Miller v Cameron [1936] HCA 13; (1936) 54 CLR 572 Mitropoulos v The Greek Orthodox Church and Community of Marrickville &
District Ltd (1993) 10 ACSR 134 MTQ Holdings Pty Ltd v RCR Tomlinson Ltd [2006] WASC 96 Nenna v Australian Securities and Investments Commission [2011] FCA 1193 Ngurli Ltd v McCann[1953] HCA 39; (1953) 90 CLR 425 Orison Pty Ltd v Strategic Minerals Corporation NL (1987) 77 ALR 141 Owston Nominees No 2 Pty Ltd v Clambake Pty Ltd [2011] WASCA 76; (2011)
248 FLR 193 P W Saddington & Sons Pty Ltd and the Companies Code (1990) 19 NSWLR
674 Peters (WA) Ltd v Petersville Ltd [2001] HCA 45; (2001) 205 CLR 126 Pope v DRP Nominees Pty Ltd [1999] SASC 337; (1999) 74 SASR 78 Porteous v Rinehart (1998) 19 WAR 495 R v Kwok Si Cheng (1976) 63 Cr App R 20 Re El Sombrero Ltd [1958] 3 WLR 349 Re Estate of Roberts (1983) 20 NTR 13
Re Friend's Trusts (1904) 21 WN (NSW) 166 Re Golden West Resources Ltd (2008) 170 FCR 409 Re Hadley (1851) 5 De G & S 67; 64 ER 1021 Re Hodson (1850) 9 Hare 118; 68 ER 439 Re Homer District Consolidated Gold Mines; Ex parte Smith (1888) 39 Ch D
546 Re Pembury Pty Ltd [1993] 1 Qd R 125 Re Portugese Consolidated Copper Mines (1889) 42 Ch D 160 Re Sidex Australia Pty Ltd (Receiver and Manager Appointed) (1995) 18 ACSR
436 Re Tempest (1866) LR 1 Ch App 485 Re Totex-Adon Pty Ltd and the Companies Act [1980] ACLC 34 Saul v Lin (No 2) [2004] NSWSC 332; (2004) 60 NSWLR 275 Scaffidi v Montevento Holdings Pty Ltd [2011] WASCA 146 Smith v Smith [2006] WASC 166 Smyth v Darley (1849) 2 HLC 789 Sydar Pty Ltd v K Simmonds Finance Pty Ltd (1995) 16 ACSR 384 Taco Co of Australia Inc v Taco Bell Pty Ltd (1982) 42 ALR 177 Tanti v Carlson [1948] VLR 401 Taylor v O'Beirne [2010] QCA 188 Vagliviello (by her next friend the Public Trustee in and for the State of Western
Australia) v Vagliviello [2003] WASC 61 Whitehouse v Carlton Hotel Pty Ltd [1987] HCA 11; (1987) 162 CLR 285 Wilson v Manna Hill Mining Co Pty Ltd [2004] FCA 912 Winthrop Investments Ltd v Winns Ltd [1975] 2 NSWLR 666 Woonda Nominees Pty Ltd v Chng [2000] WASC 173 Young v Ladies' Imperial Club Limited [1920] 2 KB 523
Introduction ................................................................................................................................9 The company proceedings: COR 14 of 2012 ..........................................................................11
The background in outline....................................................................................................11 The issues .............................................................................................................................12 Issue 1: Was there a validly appointed chairman for the 18 January 2012 meeting?..........13 Issue 2: Was the 18 January 2012 meeting in such disarray that any resolution purportedly passed ought not to be given effect?.....................................................................................21 Issue 3: Were proxy votes upon which the plaintiffs rely properly received and counted? 25
The return of the proxies ..................................................................................................26 The receipt of the proxies by Mr Thompson as witnessed by Mr Wise...........................28 Tabling of proxies at the directors' meeting on the morning of 18 January 2012 ............29 Is there a requirement of direct receipt of proxies by the company? ...............................31 The proxies were received by NWPL ..............................................................................34
Issue 4: Were proxy votes invalidly excluded by the plaintiffs?.........................................35 Issue 5: Does any misleading or deceptive conduct preclude the plaintiffs and NWPL from relying on the resolutions?....................................................................................................38 Issue 6: What relief should be granted?...............................................................................44 Conclusions in the company proceedings ............................................................................45
The third party proceedings......................................................................................................45 The trust proceedings: CIV 1118 of 2012 ...............................................................................46
The background and issues...................................................................................................46 Issue 1: Did the Trust Deed allow for the removal of a trustee by a circulating resolution?..............................................................................................................................................47 Issue 2: Alternatively, can the plaintiffs rely upon the circulating resolution even though it was not circulated to all unit holders? ..................................................................................50 Issue 3: If the circulating resolution to replace Westate as trustee was invalid, should the Court exercise its discretion to remove Westate as trustee?.................................................56 Issue 4: Should the Court exercise its discretion to appoint NW Capital as trustee?..........65
The unit holders have no power to appoint a new trustee but they can vote on a preferred choice................................................................................................................................65 It is not inexpedient, difficult or impracticable for Westate to be substituted without the assistance of the Court......................................................................................................67
Issue 5: Does any misleading or deceptive conduct in procuring the circulating resolutions affect the relief available?.....................................................................................................74 Issue 6: What relief should be granted?...............................................................................75 Conclusions in the trust proceedings ....................................................................................75
The issue of shares and units to Blue Anchor Pty Ltd and McLarty (NWDF) Pty Ltd ...........76 Conclusion................................................................................................................................78 Appendix 1: ..............................................................................................................................79 Appendix 2: ..............................................................................................................................80 Appendix 3: ..............................................................................................................................83
[2012] WASC 121
EDELMAN J:
Introduction
1 These two trials were heard concurrently. The first trial was the company proceeding. It concerned the control of a company, Northwest Properties Ltd (NWPL). The second trial was the trust proceeding. It concerned the removal of a trustee, Westate Capital Ltd (Westate). The shares in NWPL are stapled to the units in the Northwest Property Unit Trust (the Trust) of which Westate is the trustee.
2 At the heart of the company proceeding was the question of the validity of resolutions passed at a general meeting of NWPL on 18 January 2012. The meeting was variously described as a 'debacle', 'confusing', 'raucous' and 'absurd'. It involved two directors of NWPL, Mr Berresford and Mr Godfrey, purporting to hold simultaneous general meetings in the same boardroom. I reach the conclusion that no resolutions were validly passed at that meeting for three reasons. First, there was no chairperson validly appointed. Secondly, the meeting was in such disarray that no resolution could be validly passed. Thirdly, proxy votes were incorrectly excluded.
3 At the heart of the trust proceeding was the question of the purported removal of Westate as trustee. This attempted removal was by a circulating resolution which was signed by a majority of unit holders. The circulating resolution was not sent to a significant number of unit holders. This was a conscious decision. The effect was to deprive a significant number of unit holders of the opportunity to vote. This meant that the resolution was not validly passed.
4 Nevertheless, there are grounds upon which Westate should be removed as trustee. One of the directors of Westate issued shares in NWPL and units in the Trust, amounting to 30% of the Trust capital, on 17 January 2012 with a substantial motivation of procuring voting support at the 18 January 2012 general meeting. The appropriate response is for Westate to hold a meeting of unit holders, as it proposed, so that it can consider the views of unit holders in the trust for the appropriate replacement trustee. In the language of the Trustees Act 1962 (WA), it is not, currently, 'inexpedient, difficult or impracticable [to replace Westate] without the assistance of the Court'. This is particularly the case in circumstances in which the Court was presented with only one option for a replacement trustee, and the option raises some concern.
5 As the plaintiffs in the company proceedings described it, the trials essentially involved a contest between Mr Berresford and Mr Kain on the one hand, and Messrs Godfrey, Thompson and Keene on the other.1 The contest began in the boardroom. Then the plaintiffs took it to the courtroom.
6 In the company proceedings, a solution to the state of uncertainty might have been for the plaintiffs (Messrs Godfrey, Thompson and Keene) to convene a fresh meeting of NWPL with an independent chairperson. This is the approach which I have concluded to be the legal course which must be taken. But Mr Thompson said that for the sake of the operation of the company he would 'be concerned by going another 28 days'.2
7 It may be that Mr Thompson's views were initially informed by a view that there would be few issues raised against the plaintiffs' assertion of the validity of the resolutions at the 18 January 2012 meeting or the validity of the removal of Westate as trustee. But by the time the matter came to expedited trial, there were 14 substantial issues which emerged in dispute in the two cases (which I have condensed below to twelve issues). Many of these involved numerous sub-issues. There were 2,500 pages of affidavit evidence and annexures which were tendered as exhibits. Numerous legal issues were canvassed and dozens of cases were cited in submissions. By agreement of counsel, substantial cross-examination was confined to a chess clock so that the trial could be completed within the short allocated time. I also commenced hearing various applications and another trial shortly after the conclusion of the hearing. Yet despite all of this, Mr Thompson's assumption seemed to be that the time for preparation, trial, submissions, and delivery of judgment would be faster than the period in which new meetings could be convened. Although every stage of this litigation was expedited, nothing in this expedited process, or in this judgment, should be taken to endorse or support this view of Mr Thompson that litigation was necessarily the most appropriate means for rapid resolution of this dispute.
8 There were also considerable factual matters in dispute in the trial. My primary focus has been on the documents and surrounding circumstances.3 However, in a number of areas my findings of fact are also based in part upon impressions of the evidence given by the
1 Closing submissions of the plaintiffs in COR 14 of 2012 [114]. 2 ts 265 (Thompson). 3 Fox v Percy [2003] HCA 22; (2003) 214 CLR 118, 128 - 129 [30] - [31] (Gleeson CJ, Gummow & Kirby JJ).
witnesses. Wherever possible, I have cross-referenced my findings to relevant pages of the transcript.
The company proceedings: COR 14 of 2012
The background in outline
9 NWPL was, and is, an incorporated, unlisted public company. Its affairs were, and are, governed by a company constitution.
10 At all material times prior to 18 January 2012, the directors of NWPL were Messrs Godfrey, Thompson, Berresford and Kain.
11 On 18 January 2012, shareholders of NWPL attended the offices of Gadens Lawyers for what was supposed to be a general meeting. It is now common ground that the general meeting for that date had been validly called on 19 December 2011 by a member of the company, Pauline Hind Nominees Pty Ltd.
12 The proposed resolutions at the 18 January 2012 meeting were to remove Mr Berresford and Mr Kain (the first and second defendants) as directors of NWPL, and to appoint Mr Keene (a plaintiff) as a director.4 Mr Godfrey and Mr Thompson remain directors.
13 Some of the events of the 18 January 2012 'meeting' are disputed. I canvass those events in more detail below. In very broad summary, two purported meetings took place in the same room, which was about 10 m wide.5 At various times the person leading one meeting (Mr Godfrey) was speaking at the same time as the person leading the other (Mr Berresford). At one point security, acting on Mr Berresford's instructions, attempted to remove Mr Godfrey from the meeting but two of the lawyers present intervened to prevent his removal.6
14 It is unsurprising that some recollections of the meeting are not clear. Witnesses variously described the meeting as a 'debacle',7 'confusing',8 'raucous'9 and (in agreement with an online article) 'absurd'.10
4 Exhibit 6 (25 January 2012 affidavit of Mr Godfrey) page 61; exhibit 10 (2 March affidavit of Mr Thompson)
page 42. 5 ts 191 (Godfrey); ts 470 (Berresford). 6 ts 193 - 194 (Godfrey). 7 ts 321 (Hoffman). 8 Exhibit 19 (27 February 2012 affidavit of Mr Kain) [84]; ts 341 (Kain). 9 ts 386 (Kain). 10 ts 199 (Godfrey - agreed with parts of the article); ts 256 (Thompson - article was accurate); ts 306 (Keene - article was a fair description of what happened).
15 At the meeting purportedly chaired by Mr Godfrey the resolutions were said to have been passed.
16 At the meeting purportedly chaired by Mr Berresford the resolutions were said to have failed on a count of 'all votes, whether eligible or not'.11 There were 204,592 votes said to be in favour and 211,920 votes said to be against the resolution.
17 One initial complication was that on 17 January 2012 meeting there had been a purported issue of 110,000 shares in NWPL to companies called Blue Anchor Pty Ltd (Blue Anchor) and McLarty (NWDF) Pty Ltd (McLarty NWDF). These companies supported Mr Berresford and Mr Kain. The first and second defendants admit that this share issue was not authorised by a valid meeting of directors, and was void.12
18 The effect of this admission, which I accept, is that the Blue Anchor and McLarty NWDF votes should have been excluded from the count of votes on 18 January 2012. If that had occurred then, apart from any ineligible votes, the resolutions at Mr Berresford's 'meeting' might have passed with 204,592 votes in favour and 101,920 votes against.
The issues
19 Messrs Godfrey, Thompson and Keene seek a declaration that the resolutions were passed on 18 January 2012 and that they were valid and effective.
20 In contrast, the first and second defendants (Messrs Berresford and Kain) seek declarations that no general meeting took place and that Messrs Godfrey, Thompson and Keene are not entitled to rely upon the proxies they claim. They also seek orders for a meeting of NWPL to be presided over by an independent person.
21 The pleadings and submissions raise several issues, which I have set out below.13
Issue 1: Was there a validly appointed chairman for the 18 January 2012 meeting?
Issue 2: Was the conduct of the 18 January 2012 meeting in such disarray that any resolution purportedly passed ought not to be given effect?
11 Exhibit 6 (25 January 2012 affidavit of Mr Godfrey) pages 129 - 130. 12 First and second defendants' re-amended Points of Defence and re-amended Points of Counterclaim [12]. 13 First and second defendants' closing submissions for both cases, pages 5 - 6.
Issue 3: Were proxy votes upon which the plaintiffs rely properly received and counted?
Issue 4: Were proxy votes invalidly excluded by the plaintiffs?
Issue 5: Does any misleading or deceptive conduct preclude the plaintiffs and NWPL from relying on the resolutions? This involves substantial sub-issues including the following. If the resolutions were otherwise valid, can the plaintiffs and NWPL rely on the resolutions in circumstances where, the defendants contend, Mr Thompson and Mr Keene engaged in misleading or deceptive conduct in their dealings with unit holders of the Trust and shareholders of NWPL?
If the resolutions were otherwise valid, do either or both of s 18 of The Australian Consumer Law and s 12GD of the Australian Securities and Investments Commission Act 2001 (Cth) (the ASIC Act) apply to the misleading or deceptive conduct with respect to procuring the resolutions of which the defendants complain?
Issue 6: What relief should be granted?
Issue 1: Was there a validly appointed chairman for the 18 January 2012 meeting?
22 The NWPL constitution provides in cl 7.11(a)14 that the directors may elect one of the directors to the office of chairperson of directors and may determine the period for which that director is to be chairperson of directors.
23 The NWPL constitution also provides that at a general meeting:
(1) the chairperson of directors, if present and willing to act, must preside as chairperson: see cl 6.5(a);15
(2) if there is no chairperson of directors, then if the directors have elected a deputy chairperson of directors, the deputy chairperson of directors must preside as chairperson: see cl 6.5(b)(i);16 and
(3) if there is no deputy chairperson of directors, the members present must elect as chairperson of the meeting another director who is
14 Exhibit 6 (25 January 2012 affidavit of Mr Godfrey) page 47. 15 Exhibit 6 (25 January 2012 affidavit of Mr Godfrey) page 36. 16 Exhibit 6 (25 January 2012 affidavit of Mr Godfrey) page 36.
present and willing to act (or, if no director willing to act is present at the meeting, a member who is present and willing to act): see cl 6.5(c).17
24 There are two relevant, and established, principles relating to the chairing of general meetings which apply here.
25 First, with the exception of a situation where all present are unanimous (a situation which does not apply in this case), the role of a chairperson is an indispensible substantive requirement of a general meeting.18 This is particularly the case where, as here, mandatory words, such as 'must preside' and 'must elect' are used in a company's constitution.
26 Secondly, a chairperson is not merely a matter of terminological description. For a person to act as chairperson, he or she must have control at a meeting and must behave in a manner to show that he or she actually exercises procedural control over it.19 This principle is reinforced by cl 6.6(a) of the NWPL constitution which provides that any question arising at a general meeting relating to the order of business, procedure or conduct of the meeting must be referred to the chairperson of the meeting, whose decision is final.20
27 Messrs Berresford and Kain plead that Mr Berresford had acted as chairperson of directors at directors' meetings and general meetings of NWPL with the consent and acquiescence of the other directors. It is pleaded that the effect of this acquiescence prior to 21 December 2011 was that Mr Berresford was elected, or should be taken to have been elected as chairperson of directors such that only he could have presided at the 18 January 2012 general meeting.21
28 This plea was never formally abandoned but it is untenable. Although I accept that Mr Berresford honestly believed himself to have been the chairperson, in fact he did not hold that office.
17 Exhibit 6 (25 January 2012 affidavit of Mr Godfrey) page 36. 18 Colorado Constructions Pty Ltd v Platus [1966] 2 NSWR 598, 600 (Street J); Woonda Nominees Pty Ltd v Chng [2000] WASC 173 [31] (Owen J); Carpathian Resources Ltd v Hendriks [2011] FCA 41 [163] (Gilmour J). 19 Kelly v Wolstenholme (1991) 4 ACSR 709, 712 (Young J); Woonda Nominees Pty Ltd v Chng [2000] WASC 173 [32], [35] (Owen J). 20 Exhibit 6 (25 January 2012 affidavit of Mr Godfrey) page 37. 21 Re-amended points of defence and counterclaim [4], [7](b).
(i) At a directors' meeting on 24 January 2011, Mr Thompson had been proposed as chairperson but the meeting had proceeded with no chairperson.22
(ii) That meeting continued on 31 January 2011.23 Again, there was no acquiescence to the role of chairperson being conferred upon Mr Berresford.24
(iii) Mr Berresford did chair a general meeting on 1 March 2011, but the Supreme Court had ordered that he be the chairperson of that meeting; it was not by acquiescence of his fellow directors.25
(iv) Mr Berresford also chaired a meeting of directors on 2 September 2011, but at that meeting it had been proposed that the roles of board members should be formalised.26
(v) At another meeting of directors, on 21 December 2011, the board of NWPL was unable to agree on a chairperson.27 In the minutes of that meeting which Mr Berresford produced and which are disputed in part, Mr Berresford signed as 'Chairman'. But even on Mr Berresford's account, he admitted that he knew then that there was a dispute about whether he was chairman.28
29 Mr Berresford was also unable to point to any document sent to investors by him as chairperson of NWPL.29 Nor was there any resolution appointing him as chairperson.30
30 Therefore, there was no established chairperson of directors for NWPL at the commencement of the general meeting on 18 January 2012. The plaintiffs accept that the NWPL constitution required that at the general meeting there needed to be a nomination of a director as chairperson and an election by members present.31
31 The existence of a chairperson for the general meeting was an indispensible substantive requirement. As set out above, the NWPL constitution requires that the members present elect as chairperson of the
22 Exhibit 10 (2 March 2012 affidavit of Mr Thompson) page 17; ts 450 (Berresford). 23 Exhibit 10 (2 March 2012 affidavit of Mr Thompson) page 21. 24 ts 450 (Berresford). 25 Exhibit 10 (2 March 2012 affidavit of Mr Thompson) page 22. 26 Exhibit 21 (27 February 2012 affidavit of Mr Berresford) page 196; ts 454 (Berresford). 27 Exhibit 10 (2 March 2012 affidavit of Mr Thompson) page 35; ts 455, 457 - 458 (Berresford). 28 ts 455 (Berresford). 29 ts 455 (Berresford). 30 ts 456 (Berresford). 31 Plaintiffs' closing submissions in COR 14 of 2012 [82].
meeting another director who is present and willing to act (or, if no director willing to act is present at the meeting, a member who is present and willing to act).
32 Clause 6.7(c) of the NWPL constitution provides that a resolution put to the vote of a general meeting must be decided on a show of hands.32 There is an exception to this. The exception is where a poll is demanded before the vote is taken or before or immediately after the declaration of the result of the show of hands.33 The poll is to be demanded by the chairperson (an impossibly circular requirement in the case of election of a chairperson) or a member present and having the right to vote on the resolution.34 Clause 6.7(g) provides that a poll demanded at a general meeting on the election of a chairperson of the meeting must be 35 taken immediately.
33 In circumstances in which both Mr Godfrey and Mr Berresford purported to be the chairperson of the 18 January 2012 general meeting, it was essential that a vote by show of hands, or a poll, be conducted in accordance with the NWPL constitution. Neither counsel sought to contend otherwise. The plaintiffs' submission was that Mr Godfrey had been elected as chairperson by a poll.36
34 My conclusion from all the evidence is that no poll was demanded or taken for the appointment of a chairperson. Although different evidence was given by a number of the witnesses I consider that the absence of a demand for or taking of a poll to be the most likely factual occurrence.
35 The evidence of each of the plaintiffs on this point was not confidently given. This is unsurprising. They were at the heart of an acrimonious dispute. The meeting was in disarray from the beginning. Numerous events occurred in fewer than 20 minutes. These events included an attempt shortly after the opening of the meeting to remove Mr Godfrey. Mr Berresford and Mr Godfrey were talking over each other at various points. Given the nature and speed of the events which occurred and the intimate involvement of each director in the resolutions, I consider that for all the directors the situation would have been such that, as Mr Kain said, it was 'difficult to recall precisely what happened'.37
32 Exhibit 6 (24 January 2012 affidavit of Mr Godfrey) page 37. 33 Exhibit 6 (25 January 2012 affidavit of Mr Godfrey) page 37. 34 Exhibit 6 (25 January 2012 affidavit of Mr Godfrey) page 37. No issue was raised concerning whether Mr Godfrey had the power to demand this poll. 35 Exhibit 6 (25 January 2012 affidavit of Mr Godfrey) page 38. 36 Plaintiffs' closing submissions in COR 14 of 2012 [82] - [86]. 37 Exhibit 19 (27 February 2012 affidavit of Mr Kain) [84].
36 Mr Godfrey's evidence on the issue of a poll for the chairperson was, at best, equivocal. Mr Godfrey admitted that 'it was a nerve wracking experience'.38
37 In his affidavit evidence about the general meeting Mr Godfrey gave evidence on several other matters of detail concerning the start of the meeting. He said that he had introduced himself; that he had explained that the directors had been unable to agree on a chairperson; that he had called for nominations for chairperson; and that he had accepted a nomination.39 But no mention was made of a poll for the position of chairperson.
38 In cross-examination, Mr Godfrey initially said that he would have taken a poll on whether he should be appointed chairperson.40
39 Then, in cross-examination, he said that he was appointed chairperson not by a poll which had been demanded and taken but 'by virtue of the fact that we held more than 50 per cent of the proxies in the meeting, which is what I believe from our advice that you could be appointed as chairman by the shareholders'.41
40 Then, again in cross-examination, he said that he did not take a poll but 'couldn't remember exactly' without seeing his script.42 Mr Godfrey had earlier said that he read from a script at the general meeting, as advised by his lawyer.43
41 In re-examination Mr Godfrey was provided with a copy of a 'script' to refresh his memory. Mr Godfrey said that he could 'remember a lot of the things that we [ie he and his lawyer] had actually crossed out [on] this [script] then changed'.44 He had apparently adopted an amended version of the script.
42 There was an objection to Mr Godfrey being provided with the script to refresh his memory, apparently on the basis that Mr Godfrey had not personally produced this version of the script45 and that his reliance at the
38 ts 194 (Godfrey). 39 Exhibit 6 (25 January 2012 affidavit of Mr Godfrey) [11]. 40 ts 193 (Godfrey). 41 ts 193 (Godfrey). 42 ts 193 (Godfrey). 43 ts 192 (Godfrey). 44 ts 203 (Godfrey). 45 As to which there was no evidence, although my perusal of the script indicated that it appeared to have been produced by him or on his instructions.
general meeting had been on an amended version.46 I ruled against that objection.47
43 Mr Godfrey said in re-examination that he had a recollection of events outside the document. He asserted that he had called a poll after considering the script. I do not accept that any recollection he has on this point is accurate for three separate, and independent, reasons.
44 First, Mr Godfrey's evidence relied heavily upon the 'script' which he read. Although he asserted that he had an independent recollection, in answers about calling the poll, or taking a vote, he relied only upon the fact that he had read the script verbatim.48 After hearing Mr Godfrey's evidence in full on this point, I do not accept that the unamended script was sufficient to provide Mr Godfrey with any independent recollection of having held a poll, especially given the uncertainty of his earlier evidence.
45 Secondly, my conclusion from the evidence is that the unamended script was produced prior to the general meeting and then amended in a 'lot' of ways before being read out at the meeting. It may have been that one of the amendments was to remove the calling of a poll. The amended script was not shown to Mr Godfrey.
46 Thirdly, given the anxiety and disruption of the events at the start of the general meeting, including the attempt to remove Mr Godfrey from the meeting, even if the script had suggested that Mr Godfrey should call for a vote or a poll for the position of chairperson, I do not accept that Mr Godfrey would necessarily have followed it or that he would have recalled whether he followed it.
47 Mr Keene's evidence on this issue was not confident either. He said that 'I think he (Mr Godfrey) put [a poll] to the floor'.49 Mr Keene gave a non-responsive answer to a question about whether the poll involved a show of hands.50 He could not recall whether Mr Berresford was specifically asked whether Mr Berresford wanted to vote his proxies.51
46 ts 208 (Godfrey). 47 See J D Heydon (ed) Cross on Evidence (8th Australian ed, 2010), 550 [17200]; Burrough v Martin (1809) 2 Camp 112; 170 ER 1098 (refreshing memory from notes or reports made by others); see also R v Kwok Si Cheng (1976) 63 Cr App R 20 (sufficient that the document upon which memory is refreshed is substantially the same as the original, and is not of a character which bears 'little relation' to the original). 48 ts 209 - 210 (Godfrey). 49 ts 302 (Godfrey). 50 ts 302 (Godfrey). 51 ts 302 (Godfrey).
And he said that it was 'absolutely certain' that Mr Godfrey and Mr Berresford were speaking at some volume over each other.52
48 Neither Mr Berresford nor Mr Kain mentioned whether Mr Godfrey had called a poll for the chairperson. Mr Berresford's evidence (upon which he was not cross-examined) was that he could not hear Mr Godfrey properly and could not recall all that Mr Godfrey said. However, he recalled Mr Godfrey saying words to the effect 'I am Chairman'.53 Mr Berresford did not suggest that he (Mr Berresford) had called for a vote or for a poll in relation to his appointment as chairperson at the meeting which he (Mr Berresford) was also purportedly conducting.54
49 The lack of clear evidence by Mr Berresford and Mr Kain on the actions and words of Mr Godfrey is not surprising. Mr Berresford was at the other end of the table purporting, simultaneously, to open a meeting. He said that he had called out for Mr Godfrey to sit down a number of times and that he and Mr Godfrey were talking over each other. Other people were also asking Mr Godfrey to sit down.55 Mr Berresford also asked for Mr Godfrey to be removed by security.56
50 In contrast with the evidence of Messrs Godfrey, Thompson, Berresford and Kain on this issue, there was persuasive evidence given by a lawyer, Mr Wall. Mr Wall attended the general meeting as a corporate authorised representative of Blue Anchor.
51 Mr Wall was not, and is not, a director of NWPL. He was not personally involved in any of the resolutions which were proposed to be made. He is an experienced company lawyer who has attended many company meetings.57 He was not present to vote, but to observe.58 He took notes during the meeting which he then had typed as a file memorandum on the same day (18 January 2012). He satisfied himself that the typed file memorandum correctly reflected the handwritten notes.59 The file memorandum was annexed to his affidavit.60 Mr Wall's evidence establishes the strong likelihood that a poll was not taken.
52 ts 303. (Godfrey). 53 Exhibit 21 (27 February 2012 affidavit of Mr Berresford) [92]. 54 See draft minutes produced by Talbot and Olivier and adopted by Mr Berresford: exhibit 21 (27 February 2012 affidavit of Mr Berresford) pages 381 - 382. 55 Exhibit 21 (27 February 2012 affidavit of Mr Berresford) [92]. 56 Exhibit 21 (27 February 2012 affidavit of Mr Berresford) [91]. 57 ts 479 (Wall). 58 ts 482 (Wall). 59 ts 479 (Wall). 60 Exhibit 28 (affidavit of Mr Wall, 23 February 2012) pages 4 - 5.
52 Mr Wall said in his file memorandum that he heard Mr Godfrey put a motion to the meeting that Mr Godfrey be appointed the chairman, and that he heard someone second that motion. Mr Wall said that to his knowledge the motion itself was not formally put to the meeting for a vote on a show of hands or a poll. In cross-examination, Mr Wall said that he did not hear Mr Godfrey put to the meeting that he would conduct a vote by way of a poll.
53 As I have explained, there were other events occurring at this time, including an attempt by security to remove Mr Godfrey. Mr Berresford also began speaking shortly after the incident with security, purporting also to be Chairman. With these events occurring, and with Mr Wall seated at the opposite end of the table from Mr Godfrey, Mr Wall would have found it difficult to hear all the words that Mr Godfrey spoke at the times when Mr Godfrey and Mr Berresford were both speaking. Mr Wall properly accepted that there was a possibility of Mr Godfrey having conducted a poll.61 However, Mr Wall also said, and I accept, that it was 'reasonably unlikely [that Mr Godfrey called a poll] because I was paying close attention to it at that point in time' and that the calling of a poll was only a 'marginal possibility'. 62
54 In light of all the evidence before me, I conclude that on the balance of probabilities Mr Godfrey did not call a poll. For this reason, I find that the members present at the general meeting did not elect, from a director who was present and willing to act, any chairperson for the meeting. In the circumstances, it was essential that this occur for a valid general meeting to take place.
55 It was submitted by the plaintiffs that the Court should find that Mr Berresford attended the general meeting deliberately intending to act contrary to the NWPL constitution by falsely asserting that he was the chairman of NWPL. Based on this premise, it was then submitted that the Court should be slow to countenance such a strategy.63
56 Implicitly the submission was that making a finding that no valid meeting had taken place would amount to countenancing this assertion of a deliberate attempt to disrupt the meeting. This submission bore some resemblance to a submission of estoppel. But no estoppel was pleaded or asserted. The submission can only be understood to concern the manner
61 ts 481 (Wall). 62 ts 481 (Wall). 63 Plaintiffs' closing submissions in COR 14 of 2012 [80] - [81].
in which a finding of fact concerning the calling for a poll should be made.
57 Even if the premise of the submission were accepted, it is not clear how the existence of such an alleged strategy by Mr Berresford could have resulted in the valid appointment of Mr Godfrey as chairperson of the meeting despite the general chaos, which was attributable to the actions of a number of other people.
58 In any event, I do not accept the premise of the submission. The dispute between the directors prior to the 18 January 2012 general meeting was acrimonious. I have concluded that, as a matter of law, Mr Berresford was not elected, expressly or impliedly, as chairperson of the directors. Nor had the other directors acquiesced in his appointment to such a position on an ongoing basis. But I accept Mr Berresford's evidence that, at least at 18 January 2012, he genuinely believed himself to be chairperson of directors.
59 I accept that Mr Berresford was truthful in that part of his evidence where he said that although he knew that his asserted position as chairperson was disputed, he had received legal advice that he was chairperson.64 He had served as chairperson on other occasions and purported to sign minutes on two occasions as chairperson. He asserted his position as chairperson to Mr Wall65 and to auditors, KPMG,66 and I accept that he did so in the honest, although mistaken, belief that he was the chairperson.
60 My conclusion on Issue 1 is that no chairperson was validly appointed at the general meeting on 18 January 2012. The general meeting was therefore invalid.
Issue 2: Was the 18 January 2012 meeting in such disarray that any resolution purportedly passed ought not to be given effect?
61 An alternative submission put on behalf of Messrs Berresford and Kain was that the meeting was in such disarray that effect cannot be given to any resolution passed at it. I accept this submission. As Young J (as his Honour was then) colourfully expressed the point in Kelly v Wolstenholme,67 'there comes a point when the issue between the parties is so serious that one has to put aside the "she'll do mate" approach to
64 ts 469 (Berresford). 65 ts 480 (Wall). 66 Exhibit 21 (27 February 2012 affidavit of Mr Berresford) page 372. 67 Kelly v Wolstenholme (1991) 4 ACSR 709, 713 (Young J).
company meetings and actually deal with the issues that arise strictly according to law'.
62 The short reason why I accept this alternative submission is that the 18 January 2012 general meeting cannot even be described as a single meeting. There were two purported meetings occurring simultaneously. Further, even on the alternative basis upon which this issue is raised (the assumption that Mr Godfrey was properly appointed chairperson), the meeting was, nevertheless, in such disarray that the resolutions were not validly passed.
63 There are several cases where it has been held that a meeting has fallen into such disarray that any resolution passed at it cannot be given effect.
64 The first of these cases is Colorado Constructions Pty Ltd v Platus.68 That case concerned a directors' meeting convened to decide whether a mortgage (in relation to which the company was the mortgagor) should be set aside. A grossly provocative remark was made. The remark led to physical violence. Two directors and their solicitor withdrew from the meeting and order was later restored. However, Street J (as his Honour was then) held that the 'degree of disorder' to the meeting had effected an adjournment, particularly where the disruption was not contrived to frustrate the meeting.69 With the withdrawal of the two directors the meeting could not validly continue.
65 The second case is Carpathian Resources Ltd v Hendriks.70 One issue in that case was whether the annual general meeting of a company had fallen into disarray with the effect that no resolutions were passed. The meeting involved a heated dispute as to whether a member's representative, Mr Hammer, had been appointed as chairman. Mr Hammer claimed that he was the chairman but Gilmour J held that at the relevant time 'it was, or should have been, clear to him that he did not have the support of the members who were present'.71 Mr Hammer had not deliberately orchestrated events in order to disrupt the meeting.72
66 In the course of deciding that Mr Hammer was not appointed as chairman, Gilmour J described the meeting as 'intemperate, confused,
unruly and disorderly'.73 His Honour said that there was a 'confused attempt by the members present to choose a chairperson'.74 The attempt failed. Gilmour J, applying Colorado, held that the meeting fell into complete disarray and should be treated as adjourned.75
67 I have already explained that Mr Berresford did not deliberately orchestrate events in order to disrupt the general meeting. To explain why I consider that the 18 January 2012 general meeting was in complete disarray, it is necessary to express in further detail my findings concerning the events and background to the purported general meeting at the offices of Gadens Lawyers commencing at 10.00 am on 18 January 2012.
68 As I have explained above, the meeting was called for the purposes of proposed resolutions to remove Mr Berresford and Mr Kain as directors of NWPL, and to appoint Mr Keene as a director. The evidence of the length of the meeting varied but my conclusion is that it lasted for fewer than 20 minutes.76 After retiring to count the votes, Mr Godfrey had purported to declare the results by an email which he had typed and then sent at 10.23 am.77
69 The room was approximately 10 m long and Mr Berresford and Mr Godfrey were at opposite ends of a table in the room.78 There were approximately 30 - 40 people in the room.79 These included a number of shareholders in NWPL, corporate observers, lawyers and scrutineers. After the trial, counsel for the plaintiffs very helpfully provided a map, which the parties agreed was the approximate layout of the room in which the general meeting took place. I have attached that map as Appendix 1.
70 As people entered the room, there were two different attendance registers operating.80 The evidence of one shareholder, Mr Hoffman (who attended as an observer, having given his proxy to Mr Berresford), gives a vivid description of what happened at the opening of the meeting. Mr Hoffman describes the scene as follows:81
At pretty much 10 o'clock on the spot Paul Berresford stood and ... sort of called the meeting to order or tried to, and at the other end Brian Godfrey did virtually the same thing at exactly the same time.
71 There was some conflict between the evidence of the witnesses concerning the manner in which the events occurred, including the points in time when Mr Berresford and Mr Godfrey were speaking simultaneously. For the reasons I have explained above, including the difficulty which I consider Messrs Godfrey, Thompson, Keene, Berresford and Kain had in recollecting the events compared with the recollection of Mr Wall, I find that the sequence of events, on the balance of probabilities, occurred as follows.
72 As Mr Godfrey began to open the meeting some people were calling out 'Brian, sit down'.82 One of those people was Mr Berresford who stood up and told Mr Godfrey to sit down.83 Mr Godfrey did not sit down. Mr Berresford ceased speaking and sought security to remove Mr Godfrey. A lawyer from Gadens intervened to prevent the removal. While this was happening, Mr Godfrey then put a motion that he (Mr Godfrey) be appointed as chairperson and this was seconded.84 As I have explained above, this was not put to a vote by show of hands, nor was a poll called. Mr Berresford subsequently began speaking. He was then speaking at the same time as Mr Godfrey.85
73 Mr Berresford and Mr Godfrey purported to conduct simultaneous general meetings at opposite ends of the table. At various times those sitting near Mr Berresford had some difficulty hearing all the words spoken by Mr Godfrey.86 During the meeting, both Mr Godfrey and Mr Berresford collected polling cards.87
74 As I have mentioned, witnesses variously described the meeting as a 'debacle',88 'confusing',89 'raucous'90 and (in agreement with an online article) 'absurd'.91 Mr Wall said that he would have raised a point of order if Mr Godfrey had been the only person speaking.92 I accept that many of the shareholders present at the general meeting(s) believed they had voted. I also accept that it may be that once the invalid votes of Blue Anchor and
82 ts 192 (Godfrey); ts 320 (Hoffman); ts 385 (Kain); ts 482 (Wall). 83 Exhibit 21 (27 February 2012 affidavit of Mr Berresford) [91], exhibit 19 (27 February 2012 affidavit of Mr Kain) [84]; exhibit 28 (23 February 2012 affidavit of Mr Wall) page 4; ts 192 (Godfrey); ts 482 (Wall). 84 Exhibit 10 (2 March affidavit of Mr Thompson) [26]; exhibit 28 (23 February 2012 affidavit of Mr Wall) page 4; ts 192 (Godfrey); ts 482 (Wall). 85 ts 482 (Wall). 86 Exhibit 28 (23 February 2012 affidavit of Mr Wall) page 4; ts 321 (Hoffman); ts 480 (Wall). 87 ts 320 (Hoffman); ts 482 (Wall). 88 ts 321 (Hoffman). 89 Exhibit 19 (27 February 2012 affidavit of Mr Kain) [84]; ts 340 (Kain). 90 ts 386 (Kain). 91 ts 197 (Godfrey - agreed with parts of the article); ts 256 (Thompson - article was accurate); ts 306 (Keene - article was a fair description of what happened). 92 ts 483 (Wall).
McLarty NWDF were excluded there was an overwhelming majority of votes in favour of the resolutions (although there was also dispute about some of those votes, which I address below).
75 I conclude that the general meeting was in such disarray that no resolution purportedly passed at the meeting can be given effect.
76 No resolution can be saved by s 1322 of the Corporations Act 2001 (Cth). I will explain below the approach to be taken to determine whether an irregularity is procedural or substantive for the purposes of s 1322 of the Corporations Act. For the purposes of this issue it suffices to say that the line between a procedural matter and a substantive matter may sometimes be a question of degree. In private international law it has been repeatedly said that the dividing line between substance and procedure can be doubtful or artificial. In some cases the characterisation of an irregularity as substantial or procedural may also depend upon the degree of injustice or the degree of inconvenience.93
77 In this case, even if a single meeting could be said to have occurred, and even assuming that the single meeting was the one purportedly chaired by Mr Godfrey not the one chaired by Mr Berresford, the extent and manner of the disruption was so significant that the disruption cannot be other than a substantive matter. The point is emphasised by the fact that if any member had wished to make a comment or put a question to Mr Godfrey then this would have been, at the very least, extremely difficult.94 For instance, Mr Wall said that if Mr Godfrey had been the only person speaking he would have raised a point of order.95
78 Based upon this issue, I also find that no resolution was validly passed at the meeting.
Issue 3: Were proxy votes upon which the plaintiffs rely properly received and counted?
79 The essence of Issue 3 is that Messrs Berresford and Kain say that the proxies relied upon by Mr Godfrey and Mr Thompson were not received by NWPL in accordance with s 250B of the Corporations Act. They say that the proxies were required to be directly received by NWPL at least 48 hours before the meeting.96
93 Cordiant Communications (Australia) Pty Ltd v Communications Group Holdings Pty Ltd [2005] NSWSC 1005; (2005) 55 ACSR 185, 203 [87] (Palmer J). 94 Kelly v Wolstenholme (1991) 4 ACSR 709, 713 (Young J). 95 ts 483 (Wall). 96 First and second defendants' closing submissions for both cases [153].
80 At the relevant times the registered office of NWPL was also the premises of Optimus Private Pty Ltd (renamed Everstone Private Pty Ltd) at Level 2, 41 - 43 Ord St West Perth.97 As I have mentioned, the directors prior to the 18 January 2012 general meeting were Messrs Godfrey, Thompson, Berresford and Kain.
81 Some requests for proxies were sent out by emails from Mr Thompson and Mr Keene, together with a notice of meeting.98 In the notice of meeting the following was said:
To be effective, proxy forms must either:
1. be delivered or posted to the Company at the Company's registered office - care of Level 2 41-43 Ord Street, West Perth WA 6005; or
2. be faxed to the Company on (08) 9486 7383.
Proxy forms must be delivered or faxed to the company by no later than 10 am on Monday 16 January 2012.
82 In the emails sent by Mr Thompson which attached the notice of meeting, the following was said:99
Please find attached the following for your consideration and completion:
1. NorthWest Property Trust, Circulating Resolution of Members 2. NorthWest Properties Ltd, Notice of a general meeting called by
members. 3. NorthWest Properties Ltd, Proxy form - General Meeting
I will call tomorrow to discuss in more detail as I simply ran out of time today.
Action Required
1. Sign 1 and 3 above 2. Return by fax to 08 94817446 or email at [email protected] 3. Place originals in the main Attn: Shane Thompson marked 'Private
& Confidential' to PO Box 1061, West Perth 6872
97 Exhibit 6 (25 January affidavit of Mr Godfrey) page 8. Optimus Private Pty Ltd changed its name to Everstone Private Pty Ltd on 25 October 2011: exhibit 22 (7 March 2012 affidavit of Mr Berresford) page 62. 98 Exhibit 10 (2 March affidavit of Mr Thompson) pages 40, 42. 99 Exhibit 10 (2 March affidavit of Mr Thompson) page 40.
83 The emails sent by Mr Keene were to the same effect save that the direction to return the originals was to return them to Mr Keene marked 'Private & Confidential' to PO Box 1061, West Perth 6872.
84 Appendices 2 and 3 to these reasons were produced by the representatives of Messrs Berresford and Kain. They summarise the evidence (including references to the evidence upon which each conclusion is based). The column entitled 'Proxy received by the plaintiffs' purports to show the manner in which each proxy was sent, where that is ascertainable.
85 The plaintiffs did not point to any errors in this document but I have not checked every reference. It suffices to say that it is unsurprising given the manner in which return of the 'Thompson and Keene' proxies was sought, that these proxies were returned by members, and ultimately received, in the following different ways:
(6) by mail at Level 2, 41-43 Ord Street, West Perth WA 6005;
(7) by mail at PO Box 1061, West Perth 6872.
86 Several points are effectively made by Messrs Berresford and Kain.
87 First, the email address [email protected] is not the company email address.100
88 Secondly, the company fax number was 9486 7383 as provided in the notice of general meeting.101 That number is also the shared fax number of Westate Capital.102 It was not the number in (2) or (3).103
89 Thirdly, Mr Keene was not a director of NWPL and his email address was not the company email address.
90 Fourthly, the mail address of the company is not PO Box 1061, West Perth 6872.104
91 It may be that some of the proxies which were faxed to the NWPL fax number were ultimately received at a different number. The reason for this was because Mr Godfrey diverted the NWPL fax number to his home fax.105 Mr Godfrey said that he did so because the company fax might have been removed and because he did not trust Mr Berresford.106
92 Counsel for the plaintiffs made a valiant submission that the facsimiles, which were deliberately diverted from the company fax number due to mistrust of another company director, should still be treated as having been directly received by the company at that different number. I do not accept this argument, particularly in circumstances in which it is advanced on behalf of the party who deliberately diverted the facsimiles away from the company fax.
The receipt of the proxies by Mr Thompson as witnessed by Mr Wise
93 The evidence of Mr Wise, who was not cross-examined, was relied upon by the plaintiffs to support their submission that the proxies had been received by NWPL. Mr Wise is a chartered accountant who works at Optimus Financial Service Group, operating out of offices with the same registered address as NWPL.
94 Mr Wise gave evidence that on 13 January 2012 he went to Mr Thompson's office to witness independently the receipt and date stamping of various proxies. He met with Mr Thompson for 10 - 15 minutes. In his presence, Mr Thompson date stamped a bundle of proxies. Those proxies were then emailed to Mr Wise and attached to Mr Wise's affidavit.107
95 The submission of Messrs Berresford and Kain is that the receipt of the proxies, as witnessed by Mr Wise, was not a receipt by NWPL. The only reason they provide in support of this argument is that Mr Thompson's office was physically located on that part of Level 2, 41 - 43 Ord Street which was used by the Optimus Financial Service Group.108
104 Exhibit 21 (27 February 2012 affidavit of Mr Berresford) page 74. 105 ts 168 - 169 (Godfrey). 106 ts 168 - 169 (Godfrey). 107 Exhibit 1 (1 March 2012 affidavit of Mr Wise). 108 ts 245 - 246 (Thompson).
96 Messrs Berresford and Kain say that from 21 December 2011, the functional separation of Optimus Financial Service Group had become a more physical separation when a new wall was installed between the NWPL part of the floor and the Optimus Financial Service Group part of the floor and a PIN code was changed. This is depicted in the maps which are exhibits 12 - 13.
97 Although, on 13 January 2012, Mr Thompson's office was located in the functional part of the floor which served as Optimus Financial Service Group, I accept Mr Kain's evidence that the directors of NWPL all conducted the business of the different entities which were registered at Level 2, 41 - 43 Ord Street from their separate offices on that floor.109 There was some functional separation between Optimus Financial Service Group and NWPL, and that separation became physical on 21 December 2011 when a wall was installed on one part of Level 2. But there is no suggestion that the directors ceased their practice of conducting the business of the different entities with which they were associated from their offices on Level 2.
98 The receipt by Mr Thompson, acting as a director of NWPL, sitting in his office at the registered address of NWPL, with an independent witness, was a receipt by NWPL.
Tabling of proxies at the directors' meeting on the morning of 18 January 2012
99 Immediately prior to the 18 January 2012 general meeting, at 9.40 am the four directors of NWPL met at the offices of Gadens Lawyers. Mr Thompson had called the meeting. The agenda for the directors' meeting was to table proxies for the general meeting and to appoint a chairperson for the general meeting.110
100 In hindsight it is plain that there were going to be problems at the 9.40 am directors' meeting. Mr Godfrey and Mr Thompson had proposed the resolutions for the 10.00 am general meeting. Mr Berresford and Mr Kain were opposed to those resolutions. At a meeting of directors, cl 7.12(b) of the NWPL constitution requires that questions arising are to be decided by a majority of votes cast by the directors present.111 At the 9.40 am meeting, the directors were likely to be deadlocked on any question arising.
109 Exhibit 19 (27 February 2012 affidavit of Mr Kain) [10]. 110 Exhibit 19 (27 February 2012 affidavit of Mr Kain) [82] and page 259. 111 Exhibit 6 (25 January affidavit of Mr Godfrey) page 48.
101 Mr Godfrey's affidavit evidence on 25 January 2012 was that no business was transacted at that meeting. He said that:112
No business was transacted at the [9.40 am] directors meeting as Mr Paul Berresford, the first defendant, asserted that he was the chairman of NWPL and that he would chair the general meeting. I disagreed with him as did Mr Thompson, and Mr Berresford and Mr Kain thereafter refused to participate further to seek to appoint a chairman for the general meeting or table proxies for the general meeting.
102 However, in a later affidavit Mr Godfrey annexed notes that he made on the same day as the directors' meeting. Those notes had been attached to an email he sent to Mr Thompson at 3.44 pm that day.113
103 Mr Godfrey recorded that he had asked if Mr Thompson, Mr Berresford and Mr Kain would like to table the proxies they held. Mr Berresford refused. Only Mr Thompson tabled his proxies.
104 In cross-examination, it was suggested to Mr Godfrey that the note did not honestly record Mr Godfrey's recollection and that he had thought 'later' that '[g]ee, I need to do something about the proxies'. Mr Godfrey denied this implicit suggestion of contrivance.114
105 The note was emailed by Mr Godfrey to Mr Thompson on the same day as the directors' meeting, a week before his affidavit was sworn. There was no suggestion in cross-examination that Mr Godfrey had fabricated the time of the email. And he confirmed in re-examination that the date and time on the email was genuine.115 I do not accept the suggestion that his note was not an honest and genuine record.
106 In cross-examination Mr Godfrey also explained that his reference in his affidavit to no business being transacted was to no 'general business' and the 'normal business' such as appointing a chairman. He insisted that 'we tabled our proxies'.116 I accept Mr Godfrey's evidence in relation to this matter. I do not accept Mr Berresford's evidence that Mr Godfrey and Mr Thompson had refused to table their proxies, despite request to do so.117
112 Exhibit 6 (25 January 2012 affidavit of Mr Godfrey) [8]. 113 Exhibit 8 (1 March 2012 affidavit of Mr Godfrey) [3] and pages 9 - 11. 114 ts 188 (Godfrey). 115 ts 201 (Godfrey). 116 ts 187 (Godfrey). 117 Exhibit 21 (27 February 2012 affidavit of Mr Berresford) [85]; ts 468 (Berresford); exhibit 19 (27 February 2012 affidavit of Mr Kain) [83]; ts 380 (Kain).
Is there a requirement of direct receipt of proxies by the company?
107 Counsel for Messrs Berresford and Kain submit that even if (as I have found) the proxies were tabled at the directors' meeting, this is not sufficient for the proxies to have been received by NWPL. Their argument also extends to the receipt by Mr Thompson on 13 January 2012 in his office. They do not rely upon the absence of compliance with a 48 hour receipt period in relation to the directors' meeting. Instead, they say that s 250B requires proxies to be directly received by the company and that the proxies were not received directly by NWPL.118
108 Section 250A of the Corporations Act provides that an appointment of a proxy is valid if it is signed or otherwise authenticated in a manner prescribed by the regulations, by the member of the company making the appointment and contains (i) the member's name and address; (ii) the company's name; (iii) the proxy's name or the name of the office held by the proxy; and (iv) the meetings at which the appointment may be used.
109 Section 250B, which is not a replaceable rule,119 then provides as follows:
Documents to be received by company before meeting
(1) For an appointment of a proxy for a meeting of a company's members to be effective, the following documents must be received by the company at least 48 hours before the meeting:
(a) the proxy's appointment;
(b) if the appointment is signed, or otherwise authenticated in a manner prescribed by regulations made for the purposes of subsection 250A(1), by the appointor's attorney - the authority under which the appointment was signed or authenticated or a certified copy of the authority.
...
Receipt of documents
(3) A company receives a document referred to in subsection (1):
(a) when the document is received at any of the following:
(i) the company's registered office;
118 First and second defendants' closing submissions for both cases [147], [153]. 119 Section 141(b) lists the sections of the Corporations Act which are replaceable rules. Section 250B is not one of those sections.
(ii) a fax number at the company's registered office;
(iii) a place, fax number or electronic address specified for the purpose in the notice of meeting; and
(b) if the notice of meeting specifies other electronic means by which a member may give the document - when the document given by those means is received by the company as prescribed by the regulations.
110 Counsel for Messrs Berresford and Kain relied very heavily on the decision in Bisan Ltd v Cellante.120 In that case, the plaintiffs sought to restrain the holding of general meetings of two listed companies. One of the grounds was that the proxy forms which were attached to the notices of meeting required the proxies to be returned to a third party company, Omnium Corporate Pty Ltd. Dodds-Streeton J accepted this submission. Her Honour said that it was significant that 'the relevant proxies would be received by each company only following initial receipt by a third party.'121
111 Speaking of s 250B, her Honour said that the statutory requirement that proxies be returned to the company within 48 hours of the general meeting served the purpose of ensuring that directors could inspect the proxy appointments and announce the result to the meeting.122 Her Honour said that a further purpose, 'applicable to listed companies at least', may be to secure the integrity of the voting process.123 Her Honour concluded that 'the legislation's insistence on receipt by the company appears to contemplate a receipt by an entity managed and controlled by persons subject to onerous fiduciary duties in relation to the proxies, which will safeguard the actual and apparent integrity of the corporate voting process'.124
112 The decision on this point in Bisan Ltd was applied in Re Golden West Resources Ltd125 where McKerracher J held proxies to be invalid because they had been sent to a member of the company at its request, rather than to the company itself. His Honour described the decision in Bisan Ltd as 'a good deal of common sense' and said that it was not distinguishable merely because the shareholders in Re Golden West
120 Bisan Ltd v Cellante (2002) 173 FLR 310. 121 Bisan Ltd v Cellante (2002) 173 FLR 310, 316 [36]. 122 Bisan Ltd v Cellante (2002) 173 FLR 310, 316 [41]. 123 Bisan Ltd v Cellante (2002) 173 FLR 310, 316 [42]. 124 Bisan Ltd v Cellante (2002) 173 FLR 310, 316 [44]. 125 Re Golden West Resources Ltd (2008) 170 FCR 409.
Resources Ltd had been given a choice as to whether to return the proxies to the company itself or to a third party.126
113 Subsequent cases have cast doubt on the decision in Bisan Ltd. In City Pacific Ltd v Bacon127 Dowsett J considered s 252Z which provides in the context of managed investment schemes that proxies 'must be received by the responsible entity at least 48 hours before the meeting'. After referring to Bisan Ltd and Re Golden West Resources Ltd as authority for the proposition that the proxies must be sent to the nominated recipient,128 his Honour observed that the section 'does not actually say that' and thought that the possibility of collection of the proxies by a third party was not excluded.129 It was sufficient in that case to conclude that there was a serious question to be tried on this point.
114 Again, in relation to s 252Z, in Lachlan Reit Ltd v Garnaut130 Judd J explained that he shared Dowsett J's reservations expressed in City Pacific Ltd. And in Carpathian Resources Ltd v Highmoor Business Corporation131 Barker J held that the meaning of s 250B, 'is not finally settled by authority'.
115 Finally, in relation to s 250B, in Carson v Dynasty Metals Australia Ltd132 Jagot J held that there was no serious question to be tried that proxies had not been validly sent to the company. The proxies in that case were faxed to a director who then faxed them to the company. Her Honour held that the decisions in Bisan Ltd and Re Golden West Resources only stood for the proposition that a notice of meeting cannot direct a member to send a proxy form to a third party.133 Her Honour considered that s 250B did not prevent proxies to be handled by any third party on their way from a shareholder to the company.134
116 With respect, this must be correct. A proxy which is posted to the company can be handled by the postal agency. A proxy which is couriered to the company can be handled by the courier. It should make no difference if the person to whom the agency of carrying the proxy is entrusted is employed by a courier company, by a postal agency, or by a person trusted to carry the proxy to the company. None of these persons
126 Re Golden West Resources Ltd (2008) 170 FCR 409, 422 - 423 [39] - [40]. 127 City Pacific Ltd v Bacon [2009] FCA 687; (2009) 72 ACSR 418. 128 City Pacific Ltd v Bacon [2009] FCA 687; (2009) 72 ACSR 418, 420 [10]. 129 City Pacific Ltd v Bacon [2009] FCA 687; (2009) 72 ACSR 418, 423 [26]. 130 Lachlan Reit Ltd v Garnaut [2010] VSC 399 [34] - [35]. 131 Carpathian Resources Ltd v Highmoor Business Corporation [2010] FCA 1294 [74]. 132 Carson v Dynasty Metals Australia Ltd [2011] FCA 621. 133 Carson v Dynasty Metals Australia Ltd [2011] FCA 621 [24]. 134 Carson v Dynasty Metals Australia Ltd [2011] FCA 621 [24].
need to owe fiduciary duties to the company before they can be entrusted with the agency of carrying proxies to the company.
117 The decision in Bisan Ltd is confined to the factual circumstance where a proxy is directed to a third party by both notice of meeting and by the proxy form itself. That circumstance is not relevant to this case where the proxy votes concerned were sent to Mr Thompson and Mr Keene, after the issuer of the proxy had been told in the notice of meeting that, to be effective, proxy forms must either be delivered or posted to NWPL at its registered office or be faxed to NWPL. There is nothing in s 250B which prohibits the sender of a proxy to entrust it to either of these people to ensure that it is received by NWPL as they had been informed in the notice was required.
118 For completeness, I observe that there is nothing in the second reading speech which introduced s 250B,135 nor the explanatory memorandum,136 of the Act which introduced this section137 which requires a conclusion contrary to that which I have reached. The conclusion I reach applies the words of the section without the added gloss of 'directly'. A proxy can be 'received by the company' where a person who is instructed to provide a proxy to a company, entrusts it to a third party to ensure that the proxy is provided to the company and the third party in fact provides the proxy to the company.
The proxies were received by NWPL
119 The only arguments advanced by Messrs Berresford and Kain in relation to the receipt of the proxies were that the proxies had not been directly received by NWPL, and that the receipt by Mr Thompson in his office at NWPL's registered address was not a receipt by the company because of a functional and physical separation of businesses at that address.
120 For the reasons above, I accept that many of the proxies were not directly received by NWPL. But this does not affect their validity. They were received by NWPL when Mr Thompson received them, and stamped them, in his office; and also when they were tabled at the directors' meeting on 18 January 2012.
135 See Parliamentary Debates, House of Representatives, 3 December 1997, page 11931 (Mr Miles, Parliamentary Secretary to the Prime Minister). 136 Explanatory Memorandum, Company Law Review Bill 1997 (Cth), 45 [10.67]. 137 Company Law Review Act1998 (Cth).
Issue 4: Were proxy votes invalidly excluded by the plaintiffs?
121 The next issue raised by Messrs Berresford and Kain was the submission that at Mr Godfrey's meeting the proxy votes held by Messrs Berresford and Kain were excluded. It was common ground between the parties that Mr Godfrey tabled and counted the proxy votes from his meeting and Mr Berresford tabled and counted the votes from his meeting. But neither counted the votes of the other.138
122 Mr Thompson said that he did not count the proxies relied upon by Mr Berresford. He said that this was because those proxies were not tabled.139 This again illustrates the chaos of the general meeting. At Mr Berresford's 'meeting' which occurred at the other end of the table, Mr Berresford had purported to table his proxies.140
123 Mr Berresford's meeting was adjourned to determine the results of the poll. Upon reconvening, Mr Berresford announced that the results of the resolutions were 211,920 against and 1,000 in favour.141
124 As for Mr Godfrey's meeting, he did not announce the results of the resolutions at the general meeting. Instead, he closed the meeting and he said that he then counted the proxies in another room.142 Mr Godfrey's evidence concerning the manner in which the count of proxies occurred was equivocal and hesitantly given. I do not accept that the proxies were all individually counted. I find that Mr Godfrey and Mr Thompson briefly reviewed the proxies because they 'knew the numbers already'.143
125 At 10.23 am on 18 January 2012, which would not have been much more than three minutes after the meeting had been purportedly closed by Mr Godfrey, Mr Godfrey circulated an email to shareholders. The email attached a notice of results of the general meeting resolutions. It declared that each resolution had passed.144
126 Even if Mr Godfrey had been properly elected chairperson of the general meeting, and even if the disarray and distraction at the meeting could be disregarded for purposes of assessing the validity of votes passed on the resolutions, the exclusion of votes which Mr Berresford purported
138 ts 195 (Godfrey). 139 ts 266 (Thompson). 140 Exhibit 21 (27 February 2012 affidavit of Mr Berresford) [97], page 382. 141 Exhibit 21 (27 February 2012 affidavit of Mr Berresford) [97], page 382. 142 ts 196 - 197 (Godfrey). 143 ts 196 (Godfrey). 144 Exhibit 6 (25 January 2012 affidavit of Mr Godfrey) [13], pages 119 - 120.
to table at the other end of the boardroom table, was plainly an irregularity which invalidated the resolutions.
127 The plaintiffs say that this irregularity can be disregarded. Their closing submissions rely upon the decision of Le Miere J in MTQ Holdings Pty Ltd v RCR Tomlinson Ltd145 and the discussion of his Honour concerning s 1322(2) of the Corporations Act. The defendants also rely upon this decision.
128 Subsection 1322 (1) provides that (i) a proceeding is not invalidated by a procedural irregularity; (ii) 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. Condition (i) is a pre-condition to the operation of s 1322.
129 In MTQ Holdings Pty Ltd, Le Miere J held, as to (i), that it was a procedural irregularity for a chairperson to not allow a person to object to proxy votes, which was permitted under the company's constitution. Having found that the irregularity was procedural, his Honour held that the evidence in that case was that the votes would have made no difference to the result and that no substantial injustice would be caused.
130 As to the procedural nature of the irregularity, Le Miere J emphasised that the irregularity in the case was 'not that invalid proxy votes were counted in the polls'. Instead, the irregularity was 'in the procedure for voting upon the resolutions'.146 In explaining why the irregularity was procedural, Le Miere J said that as a general rule:147
[O]ne starts with a proposition that the substance of the thing to be done is the admission of the votes of all shareholders present, in person or by proxy who are entitled to vote. If something occurs which results in a denial of that right to a shareholder, or the admission of invalid votes, then there has been a substantive irregularity, not a procedural irregularity.
131 With respect, I agree.148 An irregularity in the procedure for counting votes may be procedural but where the proper characterisation of the irregularity is the exclusion of potentially valid votes which were available to be cast at the meeting then this will usually be a substantive
145 MTQ Holdings Pty Ltd v RCR Tomlinson Ltd [2006] WASC 96. 146 MTQ Holdings Pty Ltd v RCR Tomlinson Ltd [2006] WASC 96 [101]. 147 MTQ Holdings Pty Ltd v RCR Tomlinson Ltd [2006] WASC 96 [100]. 148 See also Carpathian Resources Ltd v Hendriks [2011] FCA 41 [67] (Gilmour J); Cordiant Communications (Australia) Pty Ltd v Communications Group Holding Pty Ltd [2005] NSWSC 1005; (2005) 55 ACSR 185, 203 [101] (Palmer J).
matter. This was not merely an irregularity in the procedure for voting which might have had a consequential effect of excluding valid votes.
132 The irregularity in this case was therefore substantive. It cannot be saved by s 1322 of the Corporations Act. The contrast with the examples of procedural irregularities in s 1322(1) is stark. Those procedural irregularities include defects such as the absence of a quorum, and defects or deficiencies of notice or time.149
133 There are conflicting authorities concerning whether deliberate non-compliance with an otherwise procedural rule could fall within s 1322.150 I do not need to determine that issue. Although the submissions for Messrs Berresford and Kain asserted that 'Mr Godfrey therefore knew that shareholders' votes were being excluded'151 no submission was made as to how this should affect a determination under s 1322. Nor were any submissions made concerning whether deliberate non-compliance with a procedural requirement could be a substantive matter.
134 Since the irregularity was not procedural, s 1322(2) does not apply. Hence, it is strictly unnecessary to consider whether 'the irregularity has caused or may cause substantial injustice that cannot be remedied by any order of the Court'.
135 No submission was made by the plaintiffs that the Court should apply s 1322(4). It suffices to record that there is some evidence which might support the plaintiffs' assertion that the desire of the majority of shareholders was that the resolutions should pass. That evidence, to which repeated reference was made during the trial, was Mr Kain and Mr Berresford's own assessment in an email they sent saying that:152
In counting all the votes, whether eligible or not (and a large number were ineligible as due process was not followed), the results of the meeting were ...
149 Section 1322(1)(b)(ii). 150 Authorities against characterisation as within s 1322 include McGellin v Mount King Mining NL (1998) 144 FLR 288; P W Saddington & Sons Pty Ltd and the Companies Code (1990) 19 NSWLR 674; BI Constructions Pty Ltd v George Shad and Chikal Pty Ltd [2010] NSWSC 484. Authorities supporting the possibility of an order within s 1322 include Re Pembury Pty Ltd [1993] 1 Qd R 125; Sydar Pty Ltd v K Simmonds Finance Pty Ltd (1995) 16 ACSR 384; Re Sidex Australia Pty Ltd (Receiver and Manager Appointed) (1995) 18 ACSR 436; MTQ Holdings Pty Ltd v RCR Tomlinson Ltd [2006] WASC 96; Nenna v Australian Securities and Investments Commission [2011] FCA 1193. 151 First and second defendants' closing submissions for both cases [164](l). 152 Exhibit 6 (25 January 2012 affidavit of Mr Godfrey) pages 129 - 132.
136 The plaintiffs point out that 110,000 of the shares on issue are now admitted to be void. These are the shares held by Blue Anchor and McLarty NWDF. Those shareholders voted against the resolutions. Without the vote from those shares, and ignoring the significant qualification about ineligibility due to lack of due process (which was not explained in the email), the result on the assessment of the first and second defendants themselves would be a vote in favour of the resolutions of 204,592 out of 307,512 shares on issue.
137 However, the circumstances of disarray of the meeting would nevertheless have led me to conclude that substantial injustice would be caused if the resolutions were allowed to stand. Further, the significant qualification by Messrs Kain and Berresford that 'a large number were ineligible as due process was not followed' was explained by Mr Berresford in cross-examination as meaning that he 'hadn't seen the proxies and we don't know the control and the procedures, whether they had been validly received, completed, et cetera'.153
138 I conclude on this issue that the proxy votes were invalidly excluded.
Issue 5: Does any misleading or deceptive conduct preclude the plaintiffs and NWPL from relying on the resolutions?
139 This issue was raised by Messrs Berresford and Kain but expressed as a 'secondary' issue only. It was not the subject of opening. Given the conclusions I have reached on Issues 1, 2 and 4, I do not strictly need to deal with this issue. However, submissions were made on the point in closing by the parties, and it was the subject of evidence and
153 ts 471 (Berresford).
[2012] WASC 121
cross-examination. I should explain why I do not accept the alternative submission of Messrs Berresford and Kain on this issue.
140 The misleading or deceptive conduct pleaded by Messrs Berresford and Kain was that Mr Thompson and Mr Keene distributed proxy forms by email or post around 19 December 2011 and procured the signed proxy forms in circumstances as follows.
(i) The proxy forms and/or distributing covering notes do not provide any or sufficient information to enable the recipient shareholder to consider the substance of the resolutions and make an informed decision about whether to sign the proxy form.
(ii) The emails required return of the proxy forms to persons other than NWPL.
(iii) The majority of the proxy forms sent by Mr Thompson were both pre-filled in that the boxes to vote 'for' the resolutions were ticked and the forms were also pre-dated.
141 It is said by Mr Berresford and Mr Kain that this conduct entitles them to an order that the plaintiffs and NWPL were, and are, not entitled to rely on the proxies tabled by Mr Godfrey at the general meeting.
142 There are numerous obstacles to the relief they seek in relation to this issue.
143 First, there are doubts concerning whether the provisions of either The Australian Consumer Law (which is sch 2 of the Competition and Consumer Act 2010 (Cth)) or the ASIC Act apply to any misleading or deceptive conduct with respect to procuring the purported resolutions.
144 The proscription against misleading or deceptive conduct in the ASIC Act appears in s 12DA. That section provides that a person must not, in trade or commerce, engage in conduct in relation to financial services that is misleading or deceptive or is likely to mislead or deceive.
145 At no stage did Messrs Berresford and Kain explain how their three particulars of conduct relating to the provision of proxy forms for the shareholder meeting were in relation to a 'financial service' as defined in s 12BAB.
146 Messrs Berresford and Kain referred to the decision of Barker J in Avoca Consultants Pty Ltd v Millennium3 Financial Services Pty Ltd.154 In that case his Honour considered a representation made in an agreement authorising a person as representative for the purposes of providing financial product advice. His Honour held that such a representation was not conduct in relation to providing financial product advice.
147 Messrs Berresford and Kain conceded that it is arguable that, based on this case (where, at the least, there had been detailed submissions concerning s 12BAB), s 12DA of the ASIC Act might not apply.155 They are correct. The three particulars are even further removed from a financial service, at least on the submissions before me, than the conduct in Avoca Consultants Pty Ltd. I proceed on the basis that the ASIC Act does not apply.
148 Perhaps anticipating that any misleading or deceptive conduct in this case would not be in relation to a financial service, Messrs Berresford and Kain relied also upon The Australian Consumer Law. Section 18 of The Australian Consumer Law provides that a person must not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive. The misleading or deceptive conduct under The Australian Consumer Law does not apply to the supply, or possible supply, of services that are financial services, or of financial products.156
149 Messrs Berresford and Kain asserted that the conduct relating to the provision of proxy forms for a shareholder meeting was 'in trade or commerce'. They relied only upon one case for this proposition.157 In that case the issue concerned the conduct of a public company in passing a resolution at an extraordinary general meeting authorising the acquisition of a private company. In the Federal Court, French J (as the Chief Justice was then) held that the acquisition was conduct in trade or commerce and the notice of meeting and supporting documents were also within trade or commerce because they were closely related and necessary antecedent communication.
150 No detailed submission was made, nor authority cited, concerning whether, and why, a resolution for the removal of directors, and appointment of a new director was conduct in trade or commerce. Although there may be real doubt on this point, the question need not be
154 Avoca Consultants Pty Ltd v Millennium3 Financial Services Pty Ltd [2009] FCA 883; (2009) 179 FCR 46. 155 First and second defendants' closing submissions for both cases [129]. 156 Competition and Consumer Act 2010 (Cth) s 131A. 157 Orison Pty Ltd v Strategic Minerals Corporation NL (1987) 77 ALR 141.
resolved because the submissions on this issue fail for other reasons. I proceed (without deciding) on the basis that the assumption of the proxy forms in the manner suggested in particulars (i) - (iii) was conduct 'in trade or commerce', being 'conduct which is an aspect or element of activities or transactions which, of their nature, bear a trading or commercial character'.158
151 The second obstacle to the relief sought by Messrs Berresford and Kain is that the nature of the injunctive relief sought has no support in any authority based on the statutes upon which they rely.
152 Messrs Berresford and Kain relied on s 232 of The Australian Consumer Law and s 12GD of the ASIC Act, seeking injunctive relief as provided under each of the Acts. Section 232 provides a broad power for the Court to grant an injunction if the Court is satisfied that a person has engaged, or is proposing to engage, in conduct which is, or would be, misleading or deceptive. Messrs Berresford and Kain sought an injunction in the form of an 'order that the first, second and third plaintiffs and the third defendant were, and are, not entitled to rely on the proxies'.159
153 No authority was cited for this form of injunctive relief. The assumption upon which the relief is sought is that the proxies held by the plaintiffs were validly relied upon at the general meeting. The injunctive relief is not sought to prevent any future misleading or deceptive conduct.160 The injunctive relief sought is akin to an estoppel, although no estoppel was pleaded nor alleged. The injunction is sought to enjoin the plaintiffs from relying upon those proxy votes even though the general meeting has already taken place and the purported reliance on those votes, and declaration of a result, has already occurred.
154 Unsurprisingly, I was not referred to any authority supporting this alleged type of 'injunction'.
155 The third obstacle to relief based upon the pleaded misleading or deceptive conduct is that the particulars of misleading or deceptive conduct concern only Mr Thompson and Mr Keene. But the relief sought
158 Concrete Constructions (NSW) Pty Ltd v Nelson [1990] HCA 17; (1990) 169 CLR 594, 603 - 604 (Mason CJ, Deane, Dawson & Gaudron JJ); Orisin Pty Ltd v Strategic Minerals Corporation NL (1987) 77 ALR 141. 159 Re-amended points of defence and counterclaim. 160 'Normally, it is only where there is a real risk of further misconduct that injunctive relief is contemplated': Australian Competition and Consumer Commission v Dataline.Net.Au Pty Ltd (in liquidation) [2007] FCAFC 146 [114] (the Court).
by Messrs Berresford and Kain is against all of the plaintiffs (including NWPL).
156 This may not necessarily be an absolute bar to relief, but no submissions were made, and no authority was cited, concerning the circumstances in which injunctive relief should issue in relation to third parties against whom no plea of misleading or deceptive conduct (upon which the alleged injunction is said to be based) is made.
157 The fourth obstacle to the injunctive relief sought by Messrs Berresford and Kain is that they did not point to any shareholder who was actually misled or deceived. I accept that for injunctive relief, unlike a claim for loss or damage, it is not necessary for any shareholder actually to have been misled.161 But the issue of misleading or deceptive conduct cannot be considered in the abstract.162 The absence of any evidence that any of the shareholders was misled is significant, although not conclusive, for the question of whether misleading or deceptive conduct has occurred.163
158 Fifthly, and most fundamentally, the conduct relied upon by Messrs Berresford and Kain was not misleading or deceptive within s 18 of The Australian Consumer Law. It is noteworthy that there was a paucity of submissions concerning (a) how any shareholder could have been misled or deceived by the particulars of conduct pleaded; (b) what a hypothetical shareholder might have been misled into believing; or (c) why being misled on such a matter was significant.
159 The only points made by Messrs Berresford and Kain were essentially as follows.
(i) members were misled about the proper manner in which proxies were to be returned to NWPL;
(ii) inadequate information was provided about why the proxies were to be signed and why Messrs Berresford and Kain were to be removed; and
(iii) that members might have been misled into thinking that they needed to act urgently.
161 Taco Co of Australia Inc v Taco Bell Pty Ltd (1982) 42 ALR 177, 199 (Deane & Fitzgerald JJ); Elders Trustee and Executor Co v E G Reeves Pty Ltd (1987) 78 ALR 193, 241 (Gummow J). 162 Campomar Sociedad v Nike International [2000] HCA 12; (2000) 202 CLR 45, 84 [99] (the Court). 163 au Domain Administration Ltd v Domain Names Australia Pty Ltd (2004) 207 ALR 521, 527 [15] (Finkelstein J); Australian Competition and Consumer Commission v Telstra Corporation Ltd [2007] FCA 1904; (2007) 244 ALR 470, 475 [17] (Gordon J).
160 As to (i), I have already explained in relation to Issue 3 above that the manner of return of the proxies to NWPL was not invalid or improper.
161 As to (ii), it was not suggested that any independent positive duty existed in relation to any information not provided in this case. It may generally be the case that the provision of inadequate information will only be misleading or deceptive if 'the combination of what is said and what is left unsaid' is capable of being misleading or deceptive.164 However, the case law in this area is conflicting and there is no binding authority on the scope and effect of the meaning of the words 'engage in conduct',165 which conduct is misleading or deceptive.166 The best approach, on the current state of the law, is to examine the conduct said to be misleading or deceptive, including any alleged misleading or deceptive conduct by omission or silence, by reference to all the circumstances and context.167
162 No submission was made for Messrs Berresford and Kain to elucidate how the inadequate information in the proxy forms somehow left any matter unsaid; or how any shareholder might have been misled by a lack of information about why Messrs Berresford and Kain were to be removed; or why the particular information which was missing was material to any decision which might be made. There was a paucity of evidence concerning the information which the shareholders had, or did not have, about the possible removal of Messrs Berresford and Kain. I am not satisfied that any information omitted in the proxy forms was misleading or deceptive or likely to mislead or deceive.
163 As to (iii), again I do not accept that this amounts to misleading or deceptive conduct, still less misleading or deceptive conduct which should cause a court to issue an injunction to prevent the plaintiffs from relying upon proxy votes which (on the assumption upon which this alternative ground rests) would otherwise have been valid.
164 It was never explained why members would have been misled into thinking that they had to act more urgently than was the case. Although the proxy forms were 'pre-completed' or 'pre-dated', the notice of meeting
164 Fraser v NRMA Holdings Ltd (1995) 55 FCR 452, 467 (the Court). 165 The Australian Consumer Law s 2(2). 166 Owston Nominees No 2 Pty Ltd v Clambake Pty Ltd [2011] WASCA 76; (2011) 248 FLR 193, 246 - 247 [56] (McLure P). 167 Owston Nominees No 2 Pty Ltd v Clambake Pty Ltd [2011] WASCA 76; (2011) 248 FLR 193, 247 [57] (McLure P); Miller & Associates Insurance Broking Pty Ltd v BMW Australia Finance Ltd [2010] HCA 31; (2010) 241 CLR 357, 369 [20] (French CJ & Kiefel J).
told members precisely when the voting forms needed to be received by NWPL.
165 There was no misleading or deceptive conduct by any of the plaintiffs. Also, even if the conduct pleaded had been misleading or deceptive, Messrs Berresford and Kain would not have been entitled to the relief they sought on this ground.
Issue 6: What relief should be granted?
166 The consequence of my conclusions on Issues 1,2 and 4 is that no valid resolution was passed at the 18 January 2012 general meeting of NWPL.
167 The question which then arises is whether, as Messrs Berresford and Kain contend, a new general meeting should be convened under s 249G and s 1319 Corporations Act.
168 Section 249G provides that upon application by any director (such as Messrs Berresford and Kain) the Court has a discretion to order a meeting of the company's members to be called if it is impracticable to call the meeting in any other way.
169 The meaning of impracticability was considered in Beck v Tuckey Pty Ltd.168 In that case, Austin J referred to two decisions in which courts had ordered meetings to be called. His Honour directed, contrary to the company constitution, that the quorum of the meeting could be one member to avoid a deadlock.169
170 In one of the cases cited by Austin J, Wynn-Parry J said170 that the word 'impracticable' required the Court to examine the 'circumstances of the particular case and answer the question whether, as a practical matter, the desired meeting of the company can be conducted, there being no doubt, of course, that it can be convened and held'.
171 I am satisfied that an order should be made convening a general meeting for the purposes of determining who should be the directors of NWPL. It is impracticable to call a general meeting in any other way. The board of NWPL is deadlocked. Mr Godfrey and Mr Thompson are opposed to Mr Berresford and Mr Kain and vice versa. There is a history of dispute between the directors concerning who has the capacity to call
168 Beck v Tuckey Pty Ltd [2004] NSWSC 357. 169 Re El Sombrero Ltd [1958] 3 WLR 349; Re Totex-Adon Pty Ltd and the Companies Act [1980] ACLC 34, 133. 170 Re El Sombrero Ltd [1958] 3 WLR 349, 351.
meetings, who is the chairperson, and the proper method for the receipt and tabling of proxies. Further, the business of the company needs to be transacted and the deadlock of directors is causing difficulty. Messrs Godfrey and Thompson are pressing for creditors to be paid.171 Mr Berresford is resisting some of these payments. Some shareholders of the company rely upon regular distributions and dividends as a source of income.172
Conclusions in the company proceedings
172 Messrs Berresford and Kain are entitled to a declaration that no resolutions were validly passed at the general meeting on 18 January 2012. There should be an order made under s 249G directing a new meeting of the members of NWPL.
173 Section 1319 broadly provides a power for the Court to give directions in relation to the convening, holding or conduct of the meeting. I will hear from counsel as to the appropriate ancillary directions to give effect to the order directing a meeting of the members of NWPL.
The third party proceedings
174 The only remaining extant matter in the company proceedings is an application for indemnity costs in relation to the third party proceedings.
175 By leave, granted early on 8 March 2012, the first and second defendants (Messrs Berresford and Kain) commenced third party proceedings and served upon the solicitors for the plaintiffs a third party notice. A mediation was then held on Thursday, 8 March 2012. By email on Friday, 9 March 2012 at approximately 4.00 pm the first and second defendants advised the plaintiffs of their intention to discontinue the third party proceedings. On Monday, 12 March 2012, the first day of trial, those proceedings were discontinued.
176 I have received submissions concerning an application for indemnity costs in relation to the third party proceedings. It is appropriate that I deal with this matter at the same time as any costs orders and consequential orders which follow from these reasons.
177 The shares in NWPL are stapled to units in the Northwest Property Unit Trust. No share can be issued in NWPL without the issue of a unit, nor can a unit be issued without the issue of a share in NWPL.173
178 The Trust was created by deed on 4 March 2010 (the Trust Deed). Westate, the first defendant, was appointed as trustee.174
179 The directors of Westate are Mr Berresford (since 3 March 2010),175 Mr Kain (since 3 September 2010),176 Mr Godfrey (since 6 May 2010)177 and Mr Quirk (since 1 January 2012).178
180 On 19 December 2011, a circulating resolution was sent to some of the unit holders. The circulating resolution proposed, in part, that Westate be removed as trustee and replaced by Northwest Capital Management Pty Ltd (NW Capital). NW Capital is the first plaintiff.
181 The directors of NW Capital since 15 December 2011 have been Mr Godfrey, Mr Keene, and Mr Thompson.179
182 NW Capital and the other plaintiffs seek a declaration recognising the validity of this removal and replacement. They say that the Trust Deed permits the removal of the trustee without a meeting of the unit holders, and without circulation of the notice to many of the unit holders of the proposal (and hence without notice to many of the unit holders of the proposal to remove the trustee). This might immediately be thought to be a very surprising result.
183 Alternatively the plaintiffs say that the Court should exercise a discretion conferred by s 77 of the Trustees Act 1962 (WA) to remove and replace Westate as trustee.
184 Westate says that it remains the trustee.180 It says that a declaration should be made that the circulating resolution is of no force or effect.181
173 See cl 3.1 of the Stapling Deed of the NorthWest Development Fund annexed to exhibit 21 (27 February 2012 affidavit of Mr Berresford) page 142. 174 Agreed chronology [1] - [2]. 175 Exhibit 2 (25 January 2012 affidavit of Mr Godfrey) page 10. 176 Exhibit 2 (25 January 2012 affidavit of Mr Godfrey) page 10. 177 Exhibit 2 (25 January 2012 affidavit of Mr Godfrey) page 10. 178 Exhibit 20 (7 March 2012 affidavit of Mr Kain) [10] - [16] and page 10. 179 Exhibit 19 (27 February 2012 affidavit of Mr Kain) page 217. 180 Points of Defence and Counterclaim [3], [7](c). 181 Points of Defence and Counterclaim [19](a).
Westate resists any removal of it under s 77 of the Trustees Act and says that if it were to be removed and replaced then this should occur after a meeting of unit holders.
185 NW Capital and the other plaintiffs, and Westate (as defendant), raise the following issues arising from this relief sought.
Issue 1: Did the Trust Deed allow for the removal of a trustee by a circulating resolution?182
Issue 2: Alternatively, can the plaintiffs rely upon the circulating resolution even though it was not circulated to all unit holders?
Issue 3: If the circulating resolution to replace Westate as trustee was invalid, should Westate be removed as trustee?
Issue 4: Should the Court exercise its discretion to appoint NW Capital as trustee?
Issue 5: If the circulating resolution was otherwise valid, do either or both of s 18 The Australian Consumer Law and s 12 GD ASIC Act apply to the misleading or deceptive conduct with respect to procuring the circulating resolution?
Issue 6: What relief should be granted?
Issue 1: Did the Trust Deed allow for the removal of a trustee by a circulating resolution?
186 Clause 15.1 of the Trust Deed183 provides:
Removal of Trustee
Subject to the Corporations Act the Trustee may be removed by a majority vote of the Members at any time and from time to time.
187 A 'Member' is defined in cl 1.1 as 'the person Registered as the holder of a Unit (including persons jointly Registered) and where required by the Corporations Act'.184
188 At the commencement of these proceedings the plaintiffs pleaded that a resolution of unit holders of the Trust, held on 1 March 2011, had
182 Points of Defence and Counterclaim [7](a). 183 Exhibit 21 (27 February 2012 affidavit of Mr Berresford) page 111. 184 Exhibit 21 (27 February 2012 affidavit of Mr Berresford) page 88.
amended cl 15A of the Trust Deed to provide that members may by resolution appoint an additional trustee or a new trustee in place of any trustee who, for any reason ceases to be a trustee. That plea was denied by Westate. It was subsequently withdrawn by the plaintiffs.
189 Therefore, the only question raised by this issue is whether cl 15.1 of the Trust Deed permits the removal of a trustee by a circulating resolution. In other words, on a proper construction of the Trust Deed, can the Trustee be removed by a majority circular resolution 'vote' which does not occur at a meeting of unit holders? On this point, the words of cl 15.1 are ambiguous.
190 The construction of words in the Trust Deed proceeds by the same principles as the construction of words in a contract.185 The search is for the objectively manifested meaning of the words used.
191 In the context of the Trust Deed as a whole, the objectively manifested meaning of the words 'a majority vote of the Members at any time and from time to time' is not 'a majority vote of the Members at any time and from time to time at a meeting'. This is so for seven reasons.
192 First, cl 15.1 does not mention the requirement of a meeting.
193 Secondly, cl 15.1 is separate, and independent, from cl 18 which is concerned with 'Meetings of Members'. There is nothing in cl 15 or cl 18 which creates any relationship between those two clauses.
194 Thirdly, although the word 'vote' is not defined in the Trust Deed, its ordinary meaning does not require a meeting.186 As the plaintiffs' closing submissions expressed the point, in common parlance the use of 'vote' occurs without a requirement of meeting in instances such as voting at council elections, or State or Federal elections.
195 Fourthly, the word 'vote' is used elsewhere in the Trust Deed in connection with voting in the absence of a meeting. Clause 18.19 of the Trust Deed provides that a 'resolution is taken to be carried if a simple majority of the votes cast on the resolution are in favour of it'. Although this subclause is part of cl 18, entitled 'Meetings of Members', the term 'resolution' used in cl 18.19 is defined in cl 1.1 to include votes being cast in the absence of a meeting: 'where the law allows, a resolution in writing signed by members holding the required majority of the Units in the Trust'.
196 Fifthly, there are other provisions in the Trust Deed which contemplate actions by Members otherwise than by meetings. For instance, cl 14.8 provides for an absolute discretion for the Trustee to 'seek, and act on, instructions from Members on how the Trustee should exercise voting rights attached to Assets'. In contrast, where the action of the Member is to take place at a meeting then the Trust Deed makes express reference to 'a meeting of Members', for example in part of the definition of 'Resolution'.
197 Sixthly, if a trustee could only be removed by a vote at a meeting of unit holders then cl 18.1 could create a significant difficulty. That clause provides that it is the Trustee who may convene a meeting of unit holders. The Trustee must do so if the Corporations Act requires. But there is no provision of the Corporations Act which compels a Trustee to convene a meeting upon request by unit holders for the purpose of removal of the Trustee. Nor is there any common law power for beneficiaries to compel a trustee to convene a meeting. Such a common law requirement which would be contrary to the rule that beneficiaries cannot direct a trustee's action.187 Nor is there any statutory power for a beneficiary of an unregistered trust to compel the trustee to call a meeting.188
198 The only possible way in which a trustee might be required to call a meeting of unit holders in order to decide the issue of the removal and replacement of the trustee might be if circumstances arise where the continuation of the existing trustee is causing such uncertainty, instability or damage to the trust, that the proper discharge of a trustee's duties required it to call such a meeting. But since this possibility was not argued before me, I express no conclusion on it or the circumstances in which such a duty would arise.
199 Since there is no general power for the unit holders to compel the Trustee to hold a meeting, it would be a strained construction of cl 15.1 if that clause were to require that a vote of unit holders to remove the Trustee could only occur at a meeting which only the Trustee itself could convene, in its discretion.
200 Seventhly, such a construction would also be contrary to the history and purpose of a clause providing for removal, but not reappointment, of a trustee. I will discuss that history below.
187 In re Brockbank [1948] Ch 206, 209 – 210 (Vaisey J); Scaffidi v Montevento Holdings Pty Ltd [2011] WASCA 146 [152] (Murphy JA & Hall J). 188 The plaintiffs point out in their closing submissions in CIV 1118 of 2012 [15] - [17], that it is common ground that the exception in s 601ED(2) of the Corporations Act applies, with the effect that a member cannot rely on s 252B(1) of the Corporations Act to call a meeting.
201 Against these seven reasons, one argument might be that, unlike the detailed provisions in the Trust Deed regulating meetings and voting at meetings, there are no provisions for the method and manner of voting by written instrument such as a circulating resolution. The argument is that the detailed provision for the method and manner of voting is a matter which should have mandatory application to the important issue of removal of a trustee.
202 Unlike a vote at a meeting, there is no provision in the Trust Deed for deciding questions put to vote by simple majority; for the determination of disputes relating to votes cast; for the assessment of proxy votes; or for the incorporation of the provisions of the Corporations Act governing proxies and voting which are only incorporated into the Trust Deed in relation to meetings.
203 This is an unfortunate consequence of the drafting of the Trust Deed. But the short answer, on an objective construction of the Trust Deed as a whole, may be that the lack of detail in relation to the provision for removal of a trustee by a written resolution contrasts with the detail concerning regulation of meetings because the former might reasonably be expected to be a less regular event than the latter.
204 I conclude that the Trust Deed allows for the removal of the Trustee by a circulating resolution.
Issue 2: Alternatively, can the plaintiffs rely upon the circulating resolution even though it was not circulated to all unit holders?
205 This issue is pleaded in two, overlapping ways by Westate. First, Westate pleads that not all the unit holders were given the opportunity to vote on the circular resolution.189 Westate then pleads that any notice which was given to unit holders provided no, or insufficient, information about the circular resolution.190 The second pleading is closely related to the first. If unit holders were required to be given an opportunity to vote then the failure to provide them with any notice, or sufficient information, about the circular resolution would invalidate the resolution.
206 On 19 December 2011, the circulating resolution was sent to some unit holders. The circulating resolution was as follows.
189 Re-amended Points of Defence and Points of Counterclaim in CIV 1118 of 2012 [7](c1). 190 Re-amended Points of Defence and Points of Counterclaim in CIV 1118 of 2012 [7](c2).
[2012] WASC 121
Circulating Resolutions of Members
I/We, .......................................................................................................... of ......................................................................................., being a Member of North West Property Unit Trust (Trust) entitled to vote on any proposed resolution, state that I/we are in favour of the resolutions set out below which if supported by Members holding a simple majority of units, are to take effect immediately.
Resolution 1 - Pursuant to clause 1.5 of the Trust Deed, Westate Capital Ltd (ACN 126 818 451) be removed as trustee of the Trust.
Resolution 2 - Subject to Resolution 1 taking effect, Northwest Capital Management Pty Ltd (ACN 194 794 224) be appointed as the new trustee of the Trust.
Resolution 3 - Subject to Resolutions 1 and 2 taking effect and pursuant to clause 27 of the Trust Deed, the Trust Deed be amended by inserting the words 'Special' before the word 'Resolution' in clause 15A of the Trust Deed, so it reads:
'The Members may by Special Resolution appoint:
(a) an additional Trustee; or
(b) a new Trustee or Trustees in place of any Trustee who for any reason ceases to be a Trustee.'
Resolution 4 - Subject to Resolutions 1 and 2 taking effect and pursuant to clause 27 of the Trust Deed, Clause 15 of the Trust Deed be amended by deleting the words 'Majority Vote' in line 1 of Clause 15.1 and substituting the words 'Special Resolution', and Clause 1.1 of the Trust Deed be amended by inserting a new defined term 'Special Resolution' as follows 'Special Resolution means a resolution that has been passed by at least 75% of the votes cast by members entitled to vote on the resolution'.
____________________________________________________________ Full Name of Member
_____________________________ ______________ Number of Units held by Member Date
207 This issue, Issue 2, concerns whether resolutions 1 and 2 took effect. The other resolutions are conditional upon these two.
208 It is clear that the circulating resolution was not sent to many unit holders. I accept Mr Keene's evidence that he and Messrs Godfrey and Thompson made a conscious decision not to send the circulating resolution to all unit holders.191 It is not clear from the evidence how many unit holders were not sent the circulating resolution. Mr Keene and Messrs Thompson and Godfrey decided not to send any more circulating resolutions to unit holders once they had a majority.192 Mr Thompson said that he counted only to the high 50's or 60% of the votes.193 It is likely that between 20% - 40% of the unit holders did not receive the circulating resolution.
209 Under the Trust Deed a meeting of the unit holders, on any matter, can only be convened if the members are given notice in accordance with the Corporations Act.194 The requirement for notice of business to be transacted at a meeting is long established. Yet, the effect of the plaintiffs' submission is that by passing a resolution without a meeting, on a matter as fundamental as the removal of the Trustee, it is not necessary for up to 40% of members (unit holders) to know what is proposed. I do not accept this submission for four reasons.
210 First, such an approach to a circulating resolution would be, at the very least, unusual. In Horsley's Meetings195 a 'circulating resolution' or 'resolution without meeting' is described in the following terms:
Normally the applicable provision will require the resolution to be signed by every person entitled to vote. It may require a unanimous agreement; or may provide that all entitled persons must sign a page containing the resolution, the signatures to indicate either 'in favour' or 'not in favour', with a specified large portion of favourable votes being necessary for it to be a validly passed resolution.
211 Secondly, the construction of the plaintiffs involves a very strained interpretation of cl 15.1. That clause says that the Trustee may be removed 'by a majority vote of the Members'. It does not contemplate removal by 'a vote of the majority of the Members'.
191 ts 284 (Keene). 192 ts 284 - 285 (Keene). 193 ts 267 (Thompson). 194 Clause 18.3: exhibit 21 (27 February 2012 affidavit of Mr Berresford) page 113. 195 A Lang Horsley's Meetings: Procedure Law and Practice (6th ed, 2010) 143 [11.8].
212 Thirdly, the words 'members at any time and from time to time' emphasise that the opportunity to vote should be provided to all the members (ie all the unit holders at any time and from time to time), not to only some of them. The clause contemplates a vote for removal at which all unit holders have the opportunity to vote.
213 The plaintiffs initially said that the words 'at any time and from time to time' concern the removal of the Trustee.196 Their submission was essentially that the clause should be read in the following manner:
[T]he Trustee may be removed at any time and from time to time by a majority vote of the Members [unit holders].
214 I do not accept this construction. It involves a distortion of the order of the words in cl 15.1. Further, the words 'at any time and from time to time' more naturally refer to a potentially fluid constituency of unit holders rather than a removal of the Trustee 'from time to time'.197
215 In later submissions, the plaintiffs suggested that the words referred to both the removal of the Trustee from time to time by the Members from time to time.198 For the same reasons, I do not accept this construction. But, in any event, this construction still has the effect that the vote of the 'Members from time to time' should be a vote (by majority) of all of them, from time to time.
216 Fourthly, it is well established that a company meeting will be invalidated if all voters at the meeting are not notified of the existence of the meeting. Westate relied upon authorities for a 'common law principle' that a notice of a meeting, and of a vote, must be given in order for the meeting, or the vote, to be valid. The principle was not disputed by the plaintiffs. But the plaintiffs argued that the principle should be confined to the calling of meetings. It is necessary to understand the nature of this 'common law principle' in order to appreciate why it is not so confined.
217 It is often said that there is a requirement that 'unless the constitutional documents otherwise provide, all members must have notice of the meeting'.199 The same point is made about meetings of directors. Even if the company's constitution is silent, it is often said that a director's meeting requires that '[e]ach director, within reach of notice,
196 Plaintiffs' closing submissions in CIV 1118 of 2012 [39]. 197 See also [203] above 198 Plaintiffs' 30 March 2012 supplementary submissions in CIV 1118 of 2012 [13] - 16]. 199 Ephstathis v Greek Orthodox Community of St George (1988) 13 ACLR 691, 693 (Kelly SPJ); Chaston v Ryan (Unreported, NSWSC, 10 February 1989) (Young J); Ansett Transport Industries (Operations) Pty Ltd v Australian Federation of Air Pilots [1991] 1 VR 637, 662 (Brooking J).
must individually be given notice of the meeting'.200 The notice period given must be 'reasonable'.201
218 In Young v Ladies' Imperial Club Limited,202 the committee of a ladies' club recommended that a member, Mrs Young, should resign. When she did not do so, her name was removed from the register of members. The notice convening the meeting of the committee had been sent to each member of the committee except one member who had indicated that she would be unable to attend meetings of the committee. The omission to send a notice to that single member of the committee invalidated the proceedings. The Master of the Rolls reiterated the long established principle that the convening of a special meeting required that 'every member ... ought to have notice of and a summons to the meeting'.203
219 It may be that the proper way to understand the nature of this 'common law principle' is that it is a term which is implied by law into the constitution of a company. The basis for the legal implication is that it is necessary for a member to 'know what is proposed to be done' so that he or she can decide whether to attend the meeting (in person or by proxy).204 The plaintiffs acknowledge this, but their submissions do not recognise that the decision whether to attend the meeting may itself be based upon a decision whether to vote. Hence, a lack of knowledge of the opportunity to vote, or a 'lack of full and frank disclosure to shareholders of the facts upon which they [are] asked to vote and the resolutions which [are] passed' will invalidate resolutions at a meeting.205
220 Whether or not described as an implication, this principle cannot be confined to meetings. Nor can it be confined to a company constitution, as opposed to a Trust Deed. In each case, a crucial matter is the opportunity to exercise a vote to which a member is entitled. In the absence of any express provision, a member who is entitled to vote cannot be deprived of the opportunity to attend a meeting to exercise the vote.
200 Wilson v Manna Hill Mining Co Pty Ltd [2004] FCA 912 [20] (Lander J). See also Re Portugese Consolidated Copper Mines (1889) 42 Ch D 160, 167 (Lord Esher); Young v Ladies' Imperial Club Limited [1920] 2 KB 523; Mitropoulos v The Greek Orthodox Church and Community of Marrickville & District Ltd (1993) 10 ACSR 134, 137 (McLelland J). 201 Re Homer District Consolidated Gold Mines; Ex parte Smith (1888) 39 Ch D 546, 550 (North J); Wilson v Manna Hill Mining Co Pty Ltd [2004] FCA 912 [25] (Lander J). 202 Young v Ladies' Imperial Club Limited [1920] 2 KB 523. 203 Young v Ladies' Imperial Club Limited [1920] 2 KB 523, 527 (Lord Sterndale MR) citing Smyth v Darley (1849) 2 HLC 789, 803 (Lord Campbell). 204 Ephstathis v Greek Orthodox Community of St George (1988) 13 ACLR 691, 693 (Kelly SPJ); McLure v Mitchell (1974) 6 ALR 471, 494 (Joske J). 205 McLure v Mitchell (1974) 6 ALR 471, 495 (Joske J); Baillie v Oriental Telephone [1915] 1 Ch 503, 515 (Lord Cozens-Hardy MR).
Equally, a member cannot be deprived of the opportunity to exercise a vote by written instrument.
221 In contrast with these four reasons, the plaintiffs support their construction of cl 15.1 by reference to the definition of the word 'resolution' in cl 1.1 of the Trust Deed. That definition includes 'where the law allows a resolution in writing signed by members holding the required majority of the Units in the Trust'.
222 The plaintiffs submit that this form of words contemplates that once the required majority is reached there is no necessity to continue circulating the written instrument.206 But the power in cl 15.1 does not refer to a 'resolution'. It refers only to a 'vote'. Further, even if cl 15.1 had used the word 'resolution', there may still be an implication in the words 'majority vote of the Members' that all Members must be given notice.
223 The plaintiffs also posed a hypothetical practical impediment to this construction of cl 15.1.207 They suggested that the power to pass a circulating resolution would be very limited if it required a member to know the addresses of all members, something which might require the assistance of the Trustee.
224 No evidence was given of the relevant factual matrix on this point at the time when the Trust Deed was passed. For instance, there was no evidence concerning whether, at the time of passage of the Trust Deed, the register of unit holders was available to some, or all, members. Nor was there any evidence, or submissions, concerning the extent to which circulating resolutions might be expected to be limited or rare, or might be expected to be resolutions in which the Trustee would always be expected to co-operate by providing a list of addresses. The plaintiffs' hypothetical suggestion of a practical impediment cannot inform the construction of cl 15.1.
225 I conclude that the circulating resolution was not provided to a significant number of the unit holders. This meant that the vote by circulating resolution was not a vote of 'the Members at any time and from time to time'. It did not comply with cl 15.1 and did not validly remove Westate as trustee.
206 Plaintiffs' closing submissions in CIV 1118 of 2012 [29]. 207 Plaintiffs' 30 March 2012 supplementary submissions in CIV 1118 of 2012 [9].
Issue 3: If the circulating resolution to replace Westate as trustee was invalid, should the Court exercise its discretion to remove Westate as trustee?
226 Since I have concluded that Westate was not removed as trustee by the circulating resolution, it is necessary to address the alternative submission by the plaintiffs that the Court should exercise a discretion to remove Westate as trustee and appoint NW Capital in its place.
227 This submission, and the two issues raised (removal of Westate, and substitution of NW Capital) involves a paraphrase of s 77(1) of the Trustees Act. Section 77(1) of the Trustees Act provides a power for the Court to appoint a new trustee in substitution for an existing trustee, 'whenever it is expedient to appoint a new trustee … and it is inexpedient, difficult or impracticable so to do without the assistance of the Court'.
228 The questions which properly fall to be determined are whether (1) it is expedient to appoint a new trustee in substitution for Westate; (2) whether it is inexpedient, difficult or impracticable for this to occur other than by the Court. Although my focus is on these questions, and the statutory language, I have addressed the issues in a similar manner to the way they were put in submissions because they are relevant to the statutory questions.
229 The issue of whether Westate should be removed is preliminary to the question of whether it is expedient to appoint a new trustee in substitution.
230 Section 77(2) provides for particular examples where the Court may make an order appointing a new trustee in substitution for an existing trustee. These examples include (in s 77(2)(b)) where the existing trustee 'has been held by the Court to have misconducted himself in the administration of the trust'.
231 It is not necessary in this case to consider the relationship between the statutory power to remove a trustee and appoint a new trustee and the Court's inherent power to do so.208 The plaintiffs rely only upon the statutory power.
232 The principles by which this Court should exercise the statutory power under s 77 to appoint a new trustee in substitution for an existing
208 Vagliviello (by her next friend the Public Trustee in and for the State of Western Australia) v Vagliviello [2003] WASC 61 [5] (Barker J); Scaffidi v Montevento Holdings Pty Ltd [2011] WASCA 146 [171] (Murphy JA & Hall J).
trustee are well established. These principles were summarised by Martin CJ (with whom Buss JA & Newnes AJA agreed) in Elovalis v Elovalis.209 The principles relevant to this case are set out below.
(1) The meaning of 'expedient' is that it would be 'advantageous or merely appropriate or suitable to the circumstances of the case'.210 The expediency of appointing a new trustee is that it is 'conducive to, or fit or proper or suitable having regard to, 'the interests of the beneficiaries, to the security of the trust property and to an efficient and satisfactory execution of the trusts and a faithful and sound exercise of the powers conferred upon the trustee'.211
(2) The dominant consideration in the exercise of the power is the welfare of the beneficiaries of the trust, not the imposition of a sanction or punishment upon the trustee as a consequence of misconduct.212
(3) The principal element in considering the welfare of the beneficiaries is the safety of the trust estate.213
(4) In deciding to remove a trustee, the Court forms a judgment based upon considerations, possibly large in number and varied in character, which combine to show that the welfare of the beneficiaries is opposed to the trustee's continued occupation of the office. Such a judgment has been described as 'entirely in the discretion (of course a judicial discretion) of the court',214 although circumstances must exist which enliven the power.215 The use of the protean expression 'discretion' or 'wide discretion'216 in this area appears to be a reference to the process of judicial evaluation of facts and the determination of whether those facts fall within the requirements of s 77.217
209 Elovalis v Elovalis [2008] WASCA 141. 210 Scaffidi v Montevento Holdings Pty Ltd [2011] WASCA 146 [173] (Murphy JA & Hall J). 211 Elovalis v Elovalis [2008] WASCA 141 [35] (Martin CJ); Re Estate of Roberts (1983) 20 NTR 13, 17 (O'Leary J); Porteous v Rinehart (1998) 19 WAR 495, 507 (White J). 212 Elovalis v Elovalis [2008] WASCA 141 [30] (Martin CJ); McLaughlin v Prince [2002] WASC 274 [14] (Hasluck J); Deutsch v Deutsch [2011] VSC 345 [13] (Dixon J). 213 Elovalis v Elovalis [2008] WASCA 141 [30] - [31] (Martin CJ); Miller v Cameron [1936] HCA 13; (1936) 54 CLR 572, 575 (Latham CJ). 214 Johnstone v Johnstone (1902) 2 SR (NSW) Eq 90, 91 (Walker J). 215 Elovalis v Elovalis [2008] WASCA 141 [33] (Martin CJ); Miller v Cameron [1936] HCA 13; (1936) 54 CLR 572, 580 - 581 (Dixon J). 216 Deutsch v Deutsch [2011] VSC 345 [10] (Dixon J). 217 Dwyer v Calco Timbers Pty Ltd [2008] HCA 13; (2008) 234 CLR 124, 138 - 139 [37] - [40] (the Court).
(5) A lack of confidence in the trustee's further administration of the Trust is sufficient to justify removal, without the necessity of establishing misconduct.218 Further, the question of misconduct is not a matter which necessarily carries an implication of fault or deliberate misconduct. It is a term which may be applied to a trustee who has failed to understand what are the obligations properly imposed upon him or her in the administration of the trust.219 For this reason, Lord Blackburn's remarks in Letterstedt v Broers220 are commonly cited to describe the Court's
principal duty to see that the trusts are properly executed. This duty is constantly being performed by the substitution of new trustees in the place of original trustees for a variety of reasons in non-contentious cases. And therefore, though it should appear that the charges of misconduct were either not made out, or were greatly exaggerated, so that the trustee was justified in resisting them, and the Court might consider that in awarding costs, yet if satisfied that the continuance of the trustee would prevent the trusts being properly executed, the trustee might be removed
233 The essence of the plaintiffs' case for the removal of Westate was based upon an attack on the conduct of the managing director of Westate, Mr Berresford. The plaintiffs relied only on the following two assertions:221
(1) The admission by Mr Berresford in cross-examination that he made misleading statements to shareholders concerning NWPL's failure to have its accounts audited and his misleading representations to unit holders that the Australian Securities and Investments Commission (ASIC) had granted an extension of time within which to file audited accounts to NWPL's annual general meeting;
(2) Mr Berresford's conduct in purporting to issue units in the Trust to Blue Anchor and McLarty NWDF was for the collateral and improper purpose of seeking to defeat the resolution of members of NWPL.
218 Elovalis v Elovalis [2008] WASCA 141 [34]; Miller v Cameron [1936] HCA 13; (1936) 54 CLR 572, 582 (Dixon J). 219 Elovalis v Elovalis [2008] WASCA 141 [38]; Smith v Smith [2006] WASC 166 [9] (Murray J). 220 Letterstedt v Broers (1884) 9 App Cas 371, 386. 221 Plaintiffs' closing submissions in CIV 1118 of 2012 [66].
234 The first of these two matters was not pleaded. But it was the subject of cross-examination and re-examination, and Messrs Berresford and Kain responded to it in closing submissions.222
235 Mr Berresford understood that the company accounts of NWPL were to be lodged and filed with the ASIC by 30 November 2011.223 In cross-examination he initially said that he thought that the extension which the ASIC had approved for holding the NWPL annual general meeting included an implied extension to the requirement to lodge the company accounts. But he then accepted that lawyers had advised him that the accounts still needed to be lodged on time despite the extension of time for the annual general meeting, and there was no implicit extension of time for finalising the accounts.224 Mr Berresford seemed to suggest that his understanding was that there was an extension of time to complete an audit but no extension of time to file financial statements.225 Later he accepted that the statement was an error.226
236 In an attachment to an email which Mr Berresford and Mr Kain sent to shareholders in NWPL they said that 'what [Messrs Godfrey, Thompson and Keene] are aware of and did not tell you was that ASIC has approved the extension of the independent audit which is being carried out by KPMG. This is perfectly above board'.227
237 The attachment was seven pages. It concluded with Mr Berresford and Mr Kain's exhortations to the shareholders to attend the meeting on 18 January 2012 to cast their vote in person. They said that the 'misinformation and unfounded allegations' made by Messrs Godfrey, Thompson and Keene could have misled shareholders into making a decision to support NW Capital and its chairman, Mr Keene, but '[t]his is not a company we would recommend anyone should do business with'.228
238 The statement by Messrs Berresford and Kain that the ASIC had approved an extension for the independent audit was incorrect. Mr Berresford eventually acknowledged that. Mr Kain also eventually acknowledged that the statement was incorrect.229 I accept that this was an unintentional error by Messrs Berresford and Kain in their seven page letter which sought to defend themselves from accusations by
222 First and second defendants' closing submissions for both cases [96]. 223 ts 436 (Berresford). 224 ts 436 (Berresford). 225 ts 439 - 440 (Berresford). 226 ts 440 (Berresford). 227 Exhibit 21 (27 February 2012 affidavit of Mr Berresford) page 339. 228 Exhibit 21 (27 February 2012 affidavit of Mr Berresford) page 341. 229 ts 350 (Kain).
Messrs Godfrey, Thompson and Keene, and which made counter-allegations. I also do not consider that this unintentional error, and the late filing of the annual accounts are of any sufficient substance to warrant consideration of Westate's removal.
239 The second matter is much more significant. Mr Berresford and Mr Kain are two of the four directors of Westate. The allegation is essentially one of a conscious, subjective decision by Mr Berresford to issue shares and units to Blue Anchor and McLarty NWDF for the purpose of seeking to defeat the resolutions at the 18 January 2012 general meeting.
240 This is a matter which, if accurate, demonstrates that a controlling mind of the trustee has failed to understand the obligations properly imposed upon him in the administration of the trust. If accurate, it falls squarely within the authorities discussed above where the Court's discretion is enlivened to remove and replace a trustee. Senior counsel for Westate properly did not suggest otherwise. It is very well established that the issue of shares or units is not to be used with the substantial motive of defeating the voting power of existing shareholders or unit holders.230
241 Westate sought to meet this argument by a submission that neither Mr Berresford nor Mr Kain was motivated by the purpose of seeking to defeat the 18 January 2012 resolutions at the general meeting.
242 I consider that a conclusion should not be lightly drawn that Mr Berresford issued the shares and units for a subjective purpose of procuring voting support at the forthcoming 18 January 2012 general meeting.231 Nevertheless, in light of the evidence I saw and heard, and in all the circumstances, the only reasonable conclusion is that Mr Berresford was substantially motivated to procure voting support in his issue of the shares and units to Blue Anchor and McLarty NWDF. Apart from my assessment of his demeanour in giving evidence, the circumstances which also compel me to this conclusion, and to reject his evidence to the contrary, are as follows.
230 Ngurli Ltd v McCann[1953] HCA 39; (1953) 90 CLR 425, 440 (the Court); Harlowe's Nominees Pty Ltd v Woodside (Lakes Entrance) Oil Co NL [1968] HCA 37; (1968) 121 CLR 483, 493 (the Court). See also R P Austin and I M Ramsay, Ford's Principles of Corporations Law (14th ed, 2010), 406 [8.210]. 231 Briginshaw v Briginshaw [1938] HCA 34; (1938) 60 CLR 336.
243 On 12 January 2012, following various meetings, Mr Berresford caused McLarty NWDF to be incorporated.232
244 On 16 January 2012, two days before the 18 January 2012 meeting, Mr Berresford and Mr Kain attended meetings with representatives of Blue Anchor, Transfield Securities Limited, Deutsche Bank AG and StormHarbour Securities (Hong Kong) Ltd.233 The same day Mr Berresford received applications from Blue Anchor and McLarty NWDF for shares in NWPL and stapled units in the Trust.234 The interests behind Blue Anchor were clients of Mr Berresford, and had been for seven to eight years.235
245 On 17 January 2012, one day before the 18 January 2012 meeting, the payment for the shares and stapled units were received by NWPL and Westate. On the same day, holding statements were issued by Mr Berresford to those entities. Then, at 10am the next morning, both entities purported to vote their combined 110,000 shares at the NWPL general meeting against the resolutions (ie in favour of Mr Berresford and Mr Kain).236
246 The subscriptions by Blue Anchor and McLarty NWDF also amounted to 30% of the trust fund.237
247 At the time that the shares and units were issued, Mr Berresford claimed that he and Mr Kain did not know that the voting on the resolutions at the meeting on 18 January 2012 would be close.238 I do not accept this evidence. Mr Berresford admitted, after initial denial, that he had 'probably' seen the circulating resolutions purporting to remove Westate as trustee.239 He was aware that a number of unit holders, who had identical stapled shares, had attempted to remove Westate as trustee. Mr Berresford had also been receiving proxies for voting at that meeting240 and he was, in his words, contacting shareholders 'to make sure that they were fully informed in the attempt to make a proper informed judgment'.241
248 At the time of the issue of the shares and units, Mr Berresford also knew Mr Godfrey and Mr Thompson had been opposed to the issue of shares to Transfield Securities Limited, which I discuss below. Mr Berresford said that this opposition had been because the issue of shares and units was part of a package including 'a subscription agreement that had quite a complex and detailed commitment in terms of accommodation.'242 Nevertheless, as Mr Berresford recorded in minutes of the directors' meeting of NWPL on 5 January 2012 (which he signed), '[Godfrey and Thompson] said that they had no issues in issuing shares to Transfield Services (NWDF) Pty Ltd but stated that the matter can be readdressed following the meeting of shareholders on 18th January 2012'.243
249 The proposal to issue shares to Transfield was not passed at that meeting. Transfield had proposed a $5 million subscription in the trust fund.244
250 Subsequently, neither Mr Berresford nor Mr Kain told either Mr Godfrey or Mr Thompson that they intended to issue the shares to Blue Anchor and McLarty NWDF.245 I accept Mr Godfrey's evidence that the first time he was informed about this share issue was after the purported issue. He was told at 9.00 am on 18 January 2012, only an hour before the NWPL meeting in question.246
251 Neither Mr Berresford nor Mr Kain called a board meeting to discuss the issue of the shares to Blue Anchor and McLarty NWDF. Even if Mr Berresford's evidence were accepted that he subjectively considered he could issue shares and units without board approval, Mr Berresford nevertheless accepted that board meetings are a necessity and that it is sometimes appropriate to call urgent board meetings.247 The issue of units amounting to 30% of the trust fund was plainly a matter which ought to have been brought to a board meeting.
252 In summary, only two days before the 18 January 2012 meeting, Mr Berresford met with, and obtained, subscriptions for shares and units which amounted to 30% of the trust fund, including to an entity whose incorporation he had procured five days earlier. The shares were issued and the payment made the next day and at 10am on the 18th January 2012
242 ts 466-467 (Berresford). 243 Exhibit 21 (27 February 2012 affidavit of Mr Berresford) page 311. 244 Exhibit 21 (27 February 2012 affidavit of Mr Berresford) [38]. 245 ts 360 (Kain). 246 ts 195 (Godfrey). 247 ts 452 (Berresford).
the voting rights were exercised in favour of Mr Berresford and Mr Kain's position. Mr Berresford also obtained the subscriptions without informing the other directors except Mr Kain (who supported him), and in circumstances in which he knew there was considerable uncertainty surrounding the vote at the 18 January 2012 meeting and, consequentially, the identity of the directors the following day.
253 In light of all these matters, and having observed his evidence, I am satisfied that a substantial motivation for Mr Berresford to issue the shares and units was to attempt to procure voting support for his opposition to the proposed resolutions at the 18 January 2012 meeting of NWPL.
254 Nevertheless, for the reasons which follow, I accept that there were also commercial reasons for Mr Berresford to issue the shares and units. But although I accept that there were also commercial reasons for the issue of the shares and units to Blue Anchor and McLarty NWDF, I do not consider that those commercial reasons required the immediate agreement and then issue of the investment on 17 January 2012, the day before the controversial meeting. Instead, the timing was strongly motivated by the 18 January 2012 meeting.
255 The commercial reasons for accepting the investment related to matters which dated back to September 2010. The business model of the Trust involved purchasing underutilised land and accommodation in the Pilbara and developing and expanding the infrastructure and accommodations businesses.248 Since September 2010 the trust has been negotiating for project financing.249
256 By mid-2011 the possibilities for project finance included (1) a documented offer from Deutsche Bank AG for $100 million institutional project finance; (2) a short term loan of $6.5 million from G J Johnston & Co Pty Ltd, in part to fund the Trust's costs before the Deutsche Bank AG facility became available; and (3) the further issue of stapled shares and units in the Trust to Transfield Securities Ltd.250
257 By mid-December a building contract was executed for a Karratha development but on 21 December 2011 and 5 January 2012 the proposal for the issue of shares and units to Transfield Securities Ltd was defeated at board meetings.251
248 Exhibit 21 (27 February 2012 affidavit of Mr Berresford) [7]. 249 Exhibit 21 (27 February 2012 affidavit of Mr Berresford) [35]. 250 Exhibit 21 (27 February 2012 affidavit of Mr Berresford) [35]. 251 Exhibit 21 (27 February 2012 affidavit of Mr Berresford) [45], [50].
258 In his affidavit evidence Mr Berresford suggested that the uncertainty surrounding the other financing facilities was such that the trust fund was facing insolvency if the issue to Blue Anchor and McLarty NWDF did not go ahead.252 This was a significant exaggeration, especially in light of the significant interest in the Trust which remained for investors. In cross-examination, neither Mr Berresford and Mr Kain put the need for funds anywhere near this strongly.253 When asked whether there was such a pressing commercial need that an agreement needed to be reached (and, hence, shares and units issued) between the meetings on 16 January 2012 and the general meeting of NWPL on the morning of 18 January 2012, Mr Kain replied that 'our decision was not that. That's the investors' decision when they wanted to invest the money, effectively'.254
259 Although there may have been strong commercial grounds to issue the shares and units, and to accept the investment, it was not a matter of such urgent need that it needed to be achieved before the 18 January 2012 meeting resolved the uncertainty which surrounded the directorships of NWPL.
260 In conclusion, there were commercial reasons for considering the proposal by Blue Anchor and McLarty NWDF for the issue of stapled shares and units. But based upon my assessment of the evidence of Mr Berresford and Mr Kain, and all the matters set out above (including the speed at which the shares and units were issued to those entities, the timing of the issue, the company uncertainty at the time of the issue, the absence of any notice to Messrs Godfrey and Thompson) I am satisfied that a substantial motivating factor for the issue occurring when it did was the desire of Mr Berresford to obtain voting support from Blue Anchor and McLarty NWDF.
261 Westate also argued that no finding of improper purpose in relation to the issue of shares or units could be made because whatever Mr Berresford's motivation the share and unit issue would still have gone ahead.255
262 If Westate were correct that the commercial purpose for the issue of shares and units was such that it would have occurred in any event then this might be sufficient to defeat a declaration of avoidance of the issue of
252 Exhibit 21 (27 February 2012 affidavit of Mr Berresford) [60]. 253 ts 466 (Berresford); Ts 371 (Kain) 254 ts 371 (Kain). 255 First and second defendants' closing submissions for both cases [83]. See Whitehouse v Carlton Hotel Pty Ltd [1987] HCA 11; (1987) 162 CLR 285, 294 (Mason, Deane & Dawson JJ).
shares and units for the reason of improper purpose (which declaration I reject below for different reasons). But in the context of the question whether Westate should be removed as trustee, the issue of shares for a purpose which is substantially based upon extraneous voting concerns is a matter which removes confidence in Westate's administration of the trust. In any event, I do not consider that the share and unit issue would have gone ahead at the same time, in the same amounts and to the same persons in the absence of the extraneous concern to obtain voting support.
263 For these reasons, I consider that Westate should be replaced as trustee.
264 As a postscript, I note that no submission was made, and I have not taken into account, the hostility or friction between the directors of Westate themselves, as well as between the directors of Westate and some beneficiaries. Although this is not, of itself, a reason for the removal of the trustee, it is a further factor which may have been considered in the decision whether to remove Westate; in some contexts it has been held to be of particular significance.256
265 The conclusion that Westate should be removed does not answer the second question to be considered under s 77(1) of the Trustees Act, namely whether it is inexpedient, difficult or impracticable to appoint a substitute trustee without the assistance of the Court. That question must be considered in relation to the next issue.
Issue 4: Should the Court exercise its discretion to appoint NW Capital as trustee?
266 As I have explained, even if the Court forms the view that it would be appropriate to remove an existing trustee, s 77(1) of the Trustees Act requires that it must be 'expedient to appoint a new trustee' in substitution and that 'it is inexpedient, difficult or impracticable so to do without the assistance of the Court'.
The unit holders have no power to appoint a new trustee but they can vote on a preferred choice
267 One ground upon which Westate sought to resist its replacement with NW Capital is properly understood as central to this statutory question. The ground, as it was put by Westate, was whether the unit holders should first be given the opportunity to vote on the appointment of a new trustee.
256 Smith v Smith [2006] WASC 166 [13], [15] (Murray J); Scaffidi v Montevento Holdings Pty Ltd [2011] WASCA 146 [174] (Murphy JA & Hall J).
Westate accepted that if it were thought appropriate for it to be removed as trustee then 'the unit holders should decide (in a non-controversial way) which entity is to be appointed at a properly constituted meeting of the unit holders'.257
268 There is a tension between this submission and a separate, and correct, submission also by Westate that the Trust Deed does not provide the unit holders with a power to appoint a new trustee. The vote of the unit holders for a new trustee would not be binding.
269 Clause 15.1 of the Trust Deed258 is headed 'Removal of Trustee' and provides only for the mechanism for removal of the trustee by majority vote of the members (at any time and from time to time). The submission of Westate that the Trust Deed provides only a power to remove a trustee is correct as a matter of plain meaning of the words as well as their context and history.
270 As a matter of plain meaning, the words of cl 15.1 speak of removal. They do not refer to appointment.
271 As a matter of context or need for an implication, there are statutory powers in s 77(1) of the Trustees Act for the Court to appoint a new trustee, and in s 7(1) of the Trustees Act for the existing trustee to appoint a new trustee. These powers mean that there is no need to imply a power of appointment in addition to the power of removal in cl 15.1. It is unnecessary to make such an implication either to give business efficacy to the Trust Deed or to ensure that the unit holders have the benefit of the trust deed by ensuring that the Trust does not fail for want of a trustee.259
272 Further, there is a history behind clauses which provide for the removal of a trustee, but not for the appointment of a new trustee. Apart from a Court's equitable power to appoint a new trustee, for more than 150 years Courts have had various statutory powers to appoint a new trustee. Those statutory powers first arose in the Trustee Acts of 1850 and 1852.260
273 Clause 32 of the 1850 Act was the progenitor of s 77 of the Trustees Act. It provided for a power for the Court to appoint a new trustee either
257 First and second defendants' closing submissions for both cases [104]. 258 Exhibit 21 (27 February 2012 affidavit of Mr Berresford) page 111. 259 Cf Plaintiffs' closing submissions in CIV 1118 of 2012 [48] - [49] relying upon Peters (WA) Ltd v Petersville Ltd [2001] HCA 45; (2001) 205 CLR 126, 142 [36] (Gleeson CJ, Gummow, Kirby & Hayne JJ) and BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1978) 52 ALJR 20. 260 Trustee Acts of 1850 and 1852, 13 & 14 Vict c 60; 15 & 16 Vict c 55.
in substitution for or in addition to existing trustees 'whenever it shall be expedient to appoint a new trustee or new trustees, and it shall be found inexpedient, difficult, or impracticable so to do without the assistance of the Court of Chancery'. Clause 9 of the 1852 Act provided that it was lawful for the Court to make that order even if there were no existing trustee.
274 The 1850 and 1852 Acts were limited. If the trustees desired to continue in office then it was once thought that those clauses did not authorise a Court to remove trustees and appoint others in their place.261 A clause providing for a power of removal, but not reappointment, had an obvious purpose in filling this apparent gap.
275 The Trustees Act now provides for a scenario where a trustee is removed by a donee of a power of removal, but the new trustee should be appointed by the holder of the statutory power.262
276 Although the unit holders do not have power to appoint a new trustee, s 7(1) of the Trustees Act empowers an existing, but retiring, trustee (until replaced) to appoint a new trustee. Although unit holders cannot direct Westate as to how this power should be exercised, Westate could consult the unit holders at a meeting.
It is not inexpedient, difficult or impracticable for Westate to be substituted without the assistance of the Court
277 The submission of Westate is effectively that before the Court acts under s 77(1) to remove and replace Westate, the Court ought to provide Westate with an opportunity to hold a meeting in order to consider the replacement trustee that Westate could appoint in the exercise of its statutory power under s 7(1)(c) of the Trustees Act.
278 In Scaffidi v Montevento Holdings Pty Ltd,263 Murphy JA and Hall J said:
It has been held that it is not proper to appoint new trustees without communicating with beneficiaries and hearing their objections, at least where it is likely that they would oppose the appointment: Marshall v Sladden (1849) 7 Hare 428 [439]; O'Reilly v Alderson (1849) 8 Hare 101
261 Re Hodson (1850) 9 Hare 118; 68 ER 439; Re Hadley (1851) 5 De G & S 67; 64 ER 1021. See the discussion in H Ince A Systemic Arrangement of the Trustee Act 1850 and the Extension Act of 1852 (1858) 53 - 54. See now Pope v DRP Nominees Pty Ltd [1999] SASC 337; (1999) 74 SASR 78, 87 [37] (Bleby J). 262 Section 7(3) of the Trustees Act; J D Heydon and M J Leeming (eds) Jacobs' Law of Trusts in Australia (7th ed, 2006) 321 - 322 [1511]. 263 Scaffidi v Montevento Holdings Pty Ltd [2011] WASCA 146 [152].
[103]. However, beneficiaries cannot dictate or control the exercise of the power: In re Brockbank [1948] Ch 206, 209 - 211.
279 This was said in the context of the exercise of a power of appointment by a donee of that power. But the importance of communicating with beneficiaries and hearing their objections is also relevant to the concept of 'expediency' of the appointment of a new trustee in the context of the exercise by the Court of a power under s 77(1) of the Trustees Act. And it is relevant to the question whether it is inexpedient, difficult or impracticable for Westate to be substituted as trustee without the assistance of the Court.
280 In assessing these questions, I have taken into account the delay which would be occasioned by the calling of a meeting by Westate as it proposes. But, in circumstances in which Westate has indicated its intention to call a meeting to ascertain its replacement as trustee and the relevance and propriety of hearing from the unit holders means that it is not inexpedient, difficult or impracticable for Westate to be replaced without the assistance of the Court.
281 In any event, there is an independent reason why it is not inexpedient, difficult or impracticable for the substitution of a trustee to occur without the assistance of the Court. This is because the order which I would have made would not have been to require the appointment of NW Capital, with its current directors, as the replacement trustee. This was the only option for a replacement trustee suggested by the plaintiffs.
282 Simply because the plaintiffs only proffered only one possibility (which Westate opposed) for a substitute trustee (NW Capital) does not mean that this Court should appoint NW Capital. As Murphy JA and Hall J said in Scaffidi v Montevento Holdings Pty Ltd:264
The power in the court under s 77(1) of the Act to 'make an order for the appointment of a new trustee' would, in our view, on its proper construction, include the power to order, in appropriate circumstances, the appointment of a 'proper person' as trustee, with the particular person to be nominated by the donee of the power under the supervision of the court in accordance with the decision of In re Gadd [(1883) 23 Ch D 134, 136 - 137]. See also In re Norris (1833) 27 Ch D 333.
283 The possible concern with the appointment of NW Capital, with its current directors, arises because the Court must ensure that a trustee to be appointed is a proper person.265 This concept of propriety includes the
264 Scaffidi v Montevento Holdings Pty Ltd [2011] WASCA 146 [176]. 265 Jacob's Law of Trusts in Australia (7th ed, 2006) 339 [1557].
following three factors which have been referred to in a number of decisions.266 These factors are best described as guidelines or 'rules of practice'.267
(1) Regard for the wishes of the settlor as expressed in the trust instrument or clearly to be collected from it. This consideration was expressed in negative terms in the leading authority, Re Tempest:268 'if the author of the trust has in terms declared that a particular person ... should not be the trustee of the instrument';
(2) Ensuring that the appointment will not promote the interests of some of the beneficiaries in opposition to the interests of others. This will ordinarily mean that it is a 'very salutary rule'269 that a beneficiary will not be appointed as trustee, even if the beneficiary is 'a person of the highest character'270 and even if there is a 'community of interest' between the beneficiaries and the trustee;271
(3) Consideration of whether the appointment of a particular person will promote or impede the execution of the trust.
As to (1), the wishes of the settlor, I do not consider that great weight can attach to this guideline for two reasons.
284 First, the Trust Deed is silent concerning the identity of the desired trustee. The 'Stapling Deed' which staples the units in the Trust to the shares in NWPL, provides in cl 2.2(l) that 'unless the Parties otherwise agree [NWPL and the Trustee must co-operate with a view to ensuring that they have] to the extent possible, boards of directors which are substantially the same or are a subset of the board of the other Party'.272 The words 'to the extent possible' indicate that there are limits to the desired coincidence of directors of NWPL and the Trustee.
285 Secondly, the effect of my decision in the company proceedings (COR 14 of 2012) is that the directors of NWPL are currently Messrs Godfrey, Thompson, Berresford and Kain. But a new general meeting of
266 The three factors are set out in Scaffidi v Montevento Holdings Pty Ltd [2011] WASCA 146 [177] (Murphy JA & Hall J) and Saul v Lin (No 2) [2004] NSWSC 332; (2004) 60 NSWLR 275, 284 [48] (Palmer J) approving Re Tempest (1866) LR 1 Ch App 485, 487 - 488 (Turner LJ). 267 Hobkirk v Ritchie (1933) 29 Tas LR 14, 46 (Nicholls CJ & Crisp J). 268 Re Tempest (1866) LR 1 Ch App 485, 487 (Turner LJ). 269 Re Friend's Trusts (1904) 21 WN (NSW) 166, 167. 270 Re Friend's Trusts (1904) 21 WN (NSW) 166, 167 (A H Simpson CJ in Eq). 271 Johnstone v Johnstone (1902) 2 SR (NSW) Eq 90, 93 (Walker J). 272 Exhibit 21 (27 February 2012 affidavit of Mr Berresford) pages 134, 140 - 141.
NWPL should soon be held and the identity of those directors may change.
286 In contrast, there is one matter which may have caused me concern in appointing NW Capital rather than 'a proper person' as a substitute trustee. For completeness, I refer below to a number of the other relevant matters raised by Westate which effectively concerned factors (2) and (3) above, and which Westate suggested also related to the conduct of the three directors of NW Capital (Messrs Godfrey, Keene and Thompson). Westate also submitted that the appointment of NW Capital would impede the execution of the trust because NW Capital does not hold an Australian Financial Services Licence.
287 As to the matters concerning the conduct of the three directors of NW Capital, Westate raised several issues of alleged concern.273 One of these involved a substantial amount of time taken in cross-examination. It concerned alleged unauthorised access by the directors of NW Capital to that part of the open plan floor which was occupied by offices of Everstone Private.274
288 The directorship of Everstone Private was disputed, but Mr Godfrey maintained, and I accept, that he believed that Mr Thompson and Mr Keene were directors. Mr Godfrey had their authority to be on the premises, as well as the consent of the landlord, to retrieve the records and accounts of Westate as the trustee company of which he was a director.275 This conduct related concern should be dismissed.
289 Only two other conduct related issues raised by Westate were potentially significant. Both concerned the issue of whether the appointment of NW Capital would promote the interests of some of the beneficiaries in opposition to the interests of others and whether it would impede the execution of the Trust.
290 Westate suggested that NW Capital was not a proper trustee because the directors of NW Capital counted their own votes without regard to s 253E of the Corporations Act. This section is concerned with the manner in which a responsible entity of a registered managed investment scheme, and its associates, may vote. This was the extent of the submission made by Westate on this point in closing. Although the Trust was unregistered, it may be that senior counsel for Westate envisaged that
273 First and second defendants' closing submissions for both cases [103]. 274 ts 158 (Godfrey). 275 ts 159 - 160 (Godfrey).
s 253E had operation due to cl 18.13 of the Trust Deed which applies the provisions of the Corporations Act governing proxies and voting for members of registered schemes.276 However, s 253E is concerned only with 'voting at meetings' rather than voting on a circular resolution. Further, and I did not have the benefit of submissions on this point, even assuming that cl 18.13 picks up s 253E of the Corporations Act, and even assuming that s 253E is concerned with voting on resolutions outside a meeting, it may still be an open question whether s 253E prohibited the directors of NW Capital from counting their votes. Section 253E provides:
The responsible entity of a registered scheme and its associates are not entitled to vote their interest on a resolution at a meeting of the scheme's members if they have an interest in the resolution or matter other than as a member. However, if the scheme is listed, the responsible entity and its associates are entitled to vote their interest on resolutions to remove the responsible entity and choose a new responsible entity.
291 On the assumptions mentioned, whether a director of Westate, as an 'associate',277 can vote on a resolution to remove Westate may depend on the question of whether cl 18.13 picks up s 253E on the basis that the trust is to be treated in the same way as a registered unlisted scheme or to be treated in the same way for voting purposes as a registered listed scheme.
292 Mr Godfrey's evidence was that he was not aware of a legal impediment to counting those votes and did not recall receiving any legal advice on the point.278 For the reasons I have explained, although I received no substantial submissions on the point, there may be considerable doubt as to the applicability of s 253E. However, even if there were an error by the directors of NW Capital in counting their votes, apparently contrary to some combined effect of s 253E and cl 18.13 of the Trust Deed, I do not consider that such conduct is of a nature that, with these directors, NW Capital is not a proper trustee.
293 The only allegation which potentially causes concern is the treatment by Messrs Thompson and Keene of the unit holders in sending the circulating resolution only to some of them. Westate complained about this matter and also about what was said to be 'the fact that the NW Capital directors do not seem to have any insight into the unfairness of their actions'.279
276 Exhibit 21 (27 February 2012 affidavit of Mr Berresford) page 114. 277 Corporations Act s 11. 278 ts 158. 279 First and second defendants' closing submissions for both cases [103](c), (d).
294 I have explained above the reasons why, as a matter of law, the Trust Deed conferred a power upon the unit holders to remove the Trustee, provided that a majority of the unit holders supported the removal. I have also explained why all unit holders needed to be given the opportunity to vote.280
295 It is, of course, possible for a trust deed to provide for circumstances in which beneficiaries might be treated differently. Although the equal treatment of all beneficiaries, in all circumstances, is not part of what has been sometimes suggested to be the 'irreducible core' of a trust,281 it is an important default quality of a fixed trust. In Knox v MacKinnon,282 Lord MacNaghten said that '[a]ny system of trusts which did not require trustees to act with perfect impartiality as between their cestuis que trust ... would be illusory and mischievous'. The Trust Deed itself ameliorates this general principle only in one minor respect.283 It is, therefore, a cause for concern that directors of the Trustee might consider that some beneficiary unit holders can be given the opportunity to exercise their rights whilst others will not.
296 Mr Godfrey was not part of the decision to circulate the resolutions to some unit holders and not others.284 But Mr Godfrey had no concerns that only some of the unit holders had received the circulating resolution.285 Mr Thompson said that he and Mr Keene deliberately decided to send the circulating resolution only to some unit holders.286 Once they had the required number which they considered would pass the resolution, they chose not to send it to any more unit holders.287 Mr Thompson was not concerned that he was treating unit holders differently.288 Nor was Mr Keene, who said that 'we needed a majority. It was as simple as that.'289
280 No submission was made that there might be some very small minority for whom the provision of this opportunity was, despite effort, impossible. This is altogether a different issue. 281 Armitage v Nurse [1998] Ch 241, 253 - 254 (Millett LJ) approved in Scaffidi v Montevento Holdings Pty Ltd [2011] WASCA 146 [149] (Murphy JA & Hall J); Alexander v Perpetual Trustees WA Ltd [2001] NSWCA 240 [61] - [63] (Stein JA, Davies & Ipp AJJA agreeing). 282 Knox v MacKinnon (1888) 13 AC 753, 768. See also Tanti v Carlson [1948] VLR 401, 405 (Herring CJ). 283 Clause 19.4 provides that the Trustee may have regard to the interests of Members of the Trust and the Members of the Stapled Entities as a whole and not only to the interests of the Members of the Trust alone. Exhibit 21 (27 February 2012 affidavit of Mr Berresford) page 118. 284 ts 149 (Godfrey). 285 ts 153 (Godfrey). 286 ts 220 (Thompson) 287 ts 221 (Thompson). 288 ts 221 (Thompson). 289 ts 286 (Keene).
297 Mr Thompson and Mr Keene had taken legal advice about the circulating resolution and had been told that it was sufficient for them to obtain a majority vote. However, Mr Keene's evidence was that the legal advice did not canvass whether the resolution could be sent to some unit holders only.290 Mr Thompson said that his legal counsel had given advice that 'once a simple majority had been received the other unit holders did not get that circular resolution.'291 No advice was tendered. In the absence of the tender of the legal advice received I do not accept that Mr Thompson and Mr Keene were advised in the terms suggested by Mr Thompson.
298 On the evidence before me, the conduct of Messrs Godfrey, Thompson and Keene in relation to the receipt by unit holders of the circulating resolution causes concern. Their attitude, which in the absence of the tender of legal advice I assume to have been independently formed, showed a disregard for the interests of some unit holders in voting upon the circular resolution.
299 For this reason, even if I had not reached the conclusion that the appropriate order was for Westate to call a meeting in order to take into account the views of unit holders for the appropriate exercise of its power to appoint a replacement trustee, I would nevertheless only have made an order (in terms contemplated in Scaffidi) for the appointment of a 'proper person' as trustee, with the particular person to be nominated by the holder of the statutory power (Westate) under the supervision of the Court.
300 I note also that no submission was made that any proper person who should be appointed should conform to the 'very salutary rule' that a beneficiary will not be appointed as trustee, even if the beneficiary is 'a person of the highest character' and even if there is a 'community of interest' between the beneficiaries and the trustee. It is not currently necessary to deal with that issue.
301 One other matter which Westate said would impede the execution of the Trust if NW Capital were appointed as trustee was the absence of an Australian Financial Services Licence held by NW Capital. I do not consider this would necessarily have been a substantial obstacle to appointment of NW Capital.
302 Westate said that since the units of the Trust are financial products,292 NW Capital would be in breach of the Corporations Act if NW Capital had been (as it asserted) appointed as trustee, and if it were providing any of the following services:
(1) general product advice for interests in a managed investment scheme;293
(2) dealing in a financial product by issuing units in the Trust;294
(3) custodial or depository services.295
303 But there was no evidence led, nor any detailed submissions, concerning how NW Capital, whilst purporting to be appointed as trustee by the circulating resolution, might have been in breach of any of these requirements. Nor was it explained that NW Capital would have breached any of these requirements by performing any of these services personally if it were appointed as trustee. Further, although Westate holds an Australian Financial Services Licence, the licence does not authorise Westate to supply depository services or custodial services.296
Issue 5: Does any misleading or deceptive conduct in procuring the circulating resolutions affect the relief available?
304 The issue of misleading or deceptive conduct in relation to the circulating resolutions in the trust proceedings was very similar to that which was raised in relation to the proxy votes in the company proceedings, which I have discussed above as Issue 5 in my consideration of the company proceedings. Similar relief was sought. Westate sought an injunction in the form of an 'order that the plaintiffs are not entitled to rely on the circular resolution'.297
305 The claim for misleading or deceptive conduct was again expressed only as a secondary issue. The conclusions which I have reached concerning the invalidity of the circulating resolution again mean that it is strictly unnecessary to consider whether the terms of the circulating resolution were misleading or deceptive. It is particularly unnecessary because the fact that many unit holders did not receive the circulating resolution at all makes this issue particularly abstract.
292 Corporations Act s 764A(1)(ba). 293 Corporations Act s 766B. 294 Corporations Act s 766C. 295 Corporations Act s 766E(1). 296 ts 442 (Berresford); exhibit 24. 297 Amended points of defence and points of counterclaim [19].
[2012] WASC 121
306 Nevertheless, I note that a number of the same obstacles may exist to this claim for misleading or deceptive conduct in relation to the circulating resolution as those which I have discussed in relation to the proxy votes. In particular, these obstacles include the form of relief sought and, in the absence of any evidence that any unit holder was actually misled or deceived, how a hypothetical unit holder might have been misled or deceived by the matters particularised and what it was that this hypothetical unit holder might have been misled or deceived into thinking.
Issue 6: What relief should be granted?
307 Orders should be made to give effect to the following conclusions.
308 First, the circulating resolution was not valid.
309 Secondly, Westate should be removed as trustee. However, Westate should, as it proposes, convene a meeting of unit holders to obtain their views concerning the appointment of a replacement trustee. It may be that the most appropriate course would be that the meeting should be chaired by an independent party but I have not heard submissions on this point.
Conclusions in the trust proceedings
310 Although the Trust Deed allows for the removal of the Trustee by circulating resolution, the more appropriate course would have been to hold a meeting at which this matter could have been debated. Further, the circulating resolution which was sent to some unit holders could not pass any resolution because there were a significant number of unit holders who were not sent the circulating resolution. This was a conscious decision made by those circulating the resolution.
311 Although Westate was not removed by the circulating resolution, I consider that, apart from the matters in the next paragraph, it should not continue as trustee because of the conduct of Mr Berresford on 17 January 2012 in issuing units in the trust, stapled to shares in NWPL, for a substantial purpose of affecting the voting at the general meeting of NWPL which was scheduled for 18 January 2012.
312 I decline to make an order under s 77(1) of the Trustees Act substituting NW Capital for Westate. In all the circumstances, including Westate's proposal to convene a meeting of unit holders to ascertain their views on the exercise of a power for the appropriate replacement trustee, the requirements of s 77 are not currently satisfied. In particular, the
requirement which is not satisfied is that 'it is inexpedient, difficult or impracticable [to replace Westate] without the assistance of the Court'.
313 Westate will remain the 'surviving or continuing trustee ... for the time being' for the purposes of s 7(1). This includes s 7(1)(c) of the Trustees Act which applies when a trustee seeks to be discharged from all or any of the trusts or powers reposed in or conferred on it.
The issue of shares and units to Blue Anchor Pty Ltd and McLarty (NWDF) Pty Ltd
314 Further relief was sought by the plaintiffs in each proceeding concerning the issue of shares and units to Blue Anchor and McLarty NWDF. In the originating summons in both the trust proceedings and the company proceedings the plaintiffs sought declarations that the conduct of Westate in purporting to issue shares and units to Blue Anchor and McLarty NWDF was void ab initio. This declaratory relief was sought on the basis that the issue of shares and units was contrary to the Trust Deed and in any event for an improper purpose.
315 Those defendants who took an active part in these proceedings admitted that no board meeting of Westate was convened and that no resolution was passed for the issue of those units.298 They also admitted that the issue of those shares had not been authorised by a valid meeting of directors.299 It was therefore admitted that the issue of those shares and units was void ab initio. I accept these concessions. This means that the issue of the Blue Anchor and McLarty NWDF shares and units occurred in this case without authority. Those issues were invalid.
316 Despite these concessions, the plaintiffs maintained their claims for declarations that the conduct of Messrs Berresford and Kain in purporting to issue shares in NWPL and of Westate in purporting to issue units in the Trust was for an improper purpose. I decline to make those declarations for three reasons.
317 First, the basis for a declaration is s 25(6) of the Supreme Court Act 1935 (WA) which, following s 50 of the Chancery Procedure Acts of 1850 and 1852, 13 16 Vict c35, c86, provided that the Court could grant 'binding declarations of right' without consequential relief. As I explained to counsel for the plaintiffs, Courts make declarations concerning the
298 Re-amended points of defence and amended points of counterclaim [14] - [14A]. 299 Further Re-amended points of defence and re-amended points of counterclaim [12].
rights of parties.300 The notion of legal rights includes claim rights, powers, privileges and immunities. But it does not extend to making general declarations concerning the conduct of a person in the absence of any relevant right, power, privilege or immunity.
318 Secondly, as I also indicated to counsel for the plaintiffs, a further difficulty is that a finding of improper purpose does not have the consequence that the issue of shares or units is void ab initio. It is very well established that such an issue is voidable, not void.301 The difference is material in a number of respects. The existence of third party rights might mean that a voidable issue of share or units cannot be avoided. Although the recipients of the shares and units, Blue Anchor and McLarty NWDF, were joined as parties in each proceeding, neither took any active part. Both agreed to abide by the decision of the Court. There was very limited evidence concerning the knowledge which those recipients might have had about the issue of shares and units. Further, the effect of the plaintiffs' premise that the issue of shares and units for an improper purpose was void meant that the issue of rescission was never pleaded. No consideration was given to any possible bars to rescission including, but not limited to, questions of prejudice to Blue Anchor and McLarty NWDF.
319 Thirdly, and most fundamentally, as was admitted and as I accept, the issue of shares and units was void ab initio (void from the beginning). It is impossible for a void issue of shares and units also to be voidable. A void issue is an issue which never existed. A voidable issue is one which is valid until set aside. A declaration of improper purpose, as part of relief which seeks avoidance of a share issue which is conceded to be void, makes no sense.
320 I decline to make any of the declarations sought by the plaintiffs in either matter relating to the issue of shares and units to Blue Anchor and McLarty NWDF, other than to declare the issue of those shares and units to be void ab initio.
300 Gouriet v Union of Post Office Workers [1977] UKHL 5; [1978] AC 435, 501 (Lord Diplock); Taylor v O'Beirne [2010] QCA 188 [24] (Chesterman JA). 301 Whitehouse v Carlton Hotel Pty Ltd [1987] HCA 11; (1987) 162 CLR 285, 294 - 295 (Mason, Deane & Dawson JJ); Harlowe's Nominees Pty Ltd v Woodside (Lakes Entrance) Oil Co NL [1968] HCA 37; (1968) 121 CLR 483, 494 (the Court); Ashburton Oil NL v Alpha Minerals NL [1971] HCA 5; (1971) 123 CLR 614, 643 (Gibbs J); Winthrop Investments Ltd v Winns Ltd [1975] 2 NSWLR 666, 679 - 680 (Samuels JA), 689 (Mahoney JA). See also Glover v Willert (1996) 20 ACSR 182, 186 (McPherson JA, Fitzgerald P agreeing) where the submission that the improper exercise of power had consequences of voidness was described as an assumption 'contrary to authority'.
[2012] WASC 121
Conclusion
321 The result of these proceedings may not be eudemonic, particularly in circumstances where NWPL and the Trust are somewhat paralysed by the continuing uncertainty surrounding the identity of their respective directors and trustee. However, this is the result which is compelled by law. It is unfortunate that the same result could have been achieved without litigation, and more rapidly, by NWPL calling a fresh meeting shortly after 18 January 2012, and by Westate calling a meeting of unit holders to decide whether it should exercise a power under s 7(1) of the Trustees Act to discharge itself as trustee (as I consider should be done) and to decide upon the appointment of a new trustee in its place.
322 I will hear from counsel as to the appropriate orders to give effect to these reasons.
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