Culhaci v Telco Australia Ltd [2002] FCA 42

FEDERAL COURT OF AUSTRALIA

Culhaci v Telco Australia Ltd [2002] FCA 42 DANIEL CULHACI & ANOR v TELCO AUSTRALIA LTD ACN 075 419 715 N 3001 OF 2002 EMMETT J 10 JANUARY 2002 SYDNEY

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY N 3001 OF 2002

BETWEEN: DANIEL CULHACI

FIRST APPLICANT

WEALTHWISE PROPERTIES PTY LTD

SECOND APPLICANT

AND: TELCO AUSTRALIA LIMITED ACN 075 419 715

FIRST RESPONDENT

SIEGFRIED KONIG

SECOND RESPONDENT

JUDGE: EMMETT J

DATE OF ORDER: 10 JANUARY 2002

WHERE MADE: SYDNEY

THE COURT ORDERS THAT: 1. Leave be granted to amend the application by joining Wealthwise Properties Pty Ltd as an applicant. 2. The application be dismissed. 3. The applicants to pay the respondents costs of the proceeding. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY N 3001 OF 2002

BETWEEN: DANIEL CULHACI

FIRST APPLICANT

WEALTHWISE PROPERTIES PTY LTD

SECOND APPLICANT

AND: TELCO AUSTRALIA LIMITED ACN 075 419 715

FIRST RESPONDENT

SIEGFRIED KONIG

SECOND RESPONDENT

JUDGE: EMMETT J

DATE: 10 JANUARY 2002

PLACE: SYDNEY

REASONS FOR JUDGMENT 1 The applicants seek relief under ss 1324 and 233 of the Corporations Act 2001 ("the Act"), in relation to a proposed extraordinary general meeting of Telco Australia Limited ("the Company") to be held tomorrow. The meeting was convened pursuant to a requisition under s 249D of the Act. Some questions have arisen concerning the identity of the requisitioner. Doubts on those matters found their way into the constitution of the proceeding. The proceeding, when originally commenced, was commenced in the name of Daniel Culhaci as applicant. Pursuant to leave that I gave earlier today, Wealthwise Properties Pty Limited ("Wealthwise") has been joined as an applicant. 2 The requisition was signed by Mr Culhaci, although it may be that it can be construed as having been signed on behalf of Wealthwise. Attached to the requisition was a document purporting to request that a copy of a further letter ("the Proposed Letter") be included with documentation to be sent to all shareholders. That document was signed by Mr Culhaci as Managing Director of Wealthwise. The significance of those matters will become apparent in due course. 3 The applicants seek to restrain the holding of the meeting on four bases. The first is that the date of the meeting is inconvenient. The second is that the Company failed to comply with its obligations under s 249P(6) to distribute a copy of the Proposed Letter to the members. Third, it is alleged that a director of the Company has made defamatory remarks about Mr Culhaci. Finally it is alleged that the Company and its directors have engaged in misleading conduct in failing to correct a misleading impression said to have been created by an announcement made to Australian Stock Exchange Limited ("ASX") on 20 December 2001. 4 It is common ground that Wealthwise is a shareholder of the Company and therefore has standing to bring the proceeding. It is fairly clear that Mr Culhaci would not himself have had standing, although it is arguable that, since one of the matters to be raised at the proposed meeting was his election as a director, he would have had some standing to bring some proceeding. 5 Mr Culhaci or Wealthwise and their solicitors, on the one hand, and the Company and its solicitors, on the other hand, have engaged for some time in correspondence relating to the affairs of the company. On 10 December 2001, the solicitors acting for Mr Culhaci, Blake Dawson Waldron, wrote to the solicitors acting for the company, Hopwood Ganim, saying, inter alia,the following: "We advise that you have completely failed to appreciate our client's motive for making the requisition, namely to remove directors of a company where in our client's opinion they are persons not suited to act. In removing those directors there is an obvious gap, both to manage the company and to ensure the company invests in appropriately profitable business, in order to turn the company around and to provide a return to shareholders. Our client's original suggestion was that he volunteered to fill that gap. In the events that have followed his Notice, we advise that our client no longer wishes to be a director personally. He does however, desire that the company be placed into the hands of people in whom he has confidence. His motives are in the best interests of the company and other shareholders. He has no personal objective to take control of Telco. Our client's only objective is to ensure that the directors currently in control of Telco are replaced and to effect a turnaround of the company's financial position." 6 On 13 December 2001 Hopwood Ganim wrote to Blake Dawson Waldron saying: "We refer to your fax of 10 December. You confirm in that fax that Mr Culhaci no longer wishes to be a director of Telco. Telco having been forced at your client's expense, to issue the Notice of Meeting has instructed us to seek your confirmation that your client no longer requires the resolution proposing his appointment as a director to be put before shareholders on 11 January, 2002." 7 On 18 December 2001 Hopwood Ganim wrote again to Blake Dawson Waldron saying: "We refer to our previous fax. Can you please confirm that your client does not intend to pursue the resolution on 11 December 2001 seeking the appointment of Mr Culhaci as a director. We have not heard from you in that regard." 8 On 19 December 2001 Blake Dawson Waldron acknowledged those two facsimiles and replied: "We are obtaining instructions." 9 It was in that context that the Company caused an announcement to be made to ASX saying: "Telco Australia Limited (Telco) previously announced that Wealthwise Properties Pty Limited requisitioned Telco to hold a meeting of members to consider various resolutions including a resolution to appoint Daniel Culhaci as a director of the company. Telco has given notice that an extraordinary general meeting of Telco will be held on 11 January 2002 to consider the resolutions. Solicitors acting for Daniel Culhaci and Wealthwise Properties Pty Limited advised Telco Australia Limited on 10 December 2001 that "we advise our client no longer wishes to personally be a director". Telco has twice requested clarification, however, has received no response to date." 10 That announcement was perfectly accurate and proper in the circumstances. There was nothing in the context in which the quoted phrase appeared in the letter to suggest that it had some other meaning. Thus, there was an unequivocal statement by Blake Dawson Waldron that Mr Culhaci no longer wished to be a director. There is no explanation as to how Blake Dawson Waldron came to say that or why there was no response to the inquiries of 13 and 18 December 2001. 11 On finding out about the announcement on 21 December, Mr Culhaci made efforts to contact the Company's office in Sydney. He spoke to the only person available there, Mr Rorque Possion, who said that he would pass on a message to Mr Siegfried Konig, a director of the Company. Mr Culhaci then rang the Company's secretary, Mr Matt Konig, on his mobile telephone as well as Mr Siegfrid Konig on his mobile telephone. Both of the calls were diverted. A message was left explaining that the announcement of the ASX was incorrect and requesting that it be removed and replaced with an explanatory one. Mr Culhaci also sent an 'SMS' message to Mr Konig relaying the same information. 12 On 24 December 2001 Mr Culhaci wrote to the Brisbane office of ASX relevantly saying: "… I wish to confirm my sentiments that the ASX announcement released to the market by Telco Australia at 6.58.03 pm Thursday 20 December 2001 is both incorrect, misleading and oppressive to myself and other shareholders. The comments quoted, "we advise that our client no longer wishes to personally be a director". Is grossly taken out of context from one of many correspondences sent to Telco's Lawyers, Hopwood Ganim. ……………………… This latest announcement is aimed solely at discrediting me and misrepresenting my intentions to the market. ……………………… I do not object to you sending a copy of this letter to Telco directors as I have already spoken to … the only Telco associate I could, Mr Rorque Possion as well as sent an SMS message to both Siegfried Konig and Matt Konig requesting them to retract this incorrect announcement." 13 On 30 December, Mr Culhaci wrote to Hopwood Ganim saying a number of things including the following: "Further in relation to the misleading announcement released to the ASX on Thursday, 20 December 2001 please find attached a copy of a letter which is self explanatory and which has been drafted and sent to Dianna Higgins at the ASX on 24 December 2001. I would ask that this announcement be retracted and an explanatory one be made to the market immediately." 14 While it appears that Mr Culhaci had some change of intention, or at least a different intention from that stated unequivocally by his solicitors, it is by no means clear what it was that was misleading or incorrect about the statement that had been made to the ASX. The ASX announcement was in fact correct and accurate. Mr Culhaci did not unequivocally say that he wished to be considered as a director, notwithstanding the statement by Blake Dawson Waldron, although that may be an inference that can be drawn from his conduct. I do not consider that the failure by the Company to take any steps to correct any misapprehension that might have been created by the letter from Blake Dawson Waldron gives rise to any ground for interfering with the holding of the meeting. 15 The second matter relates to the request to include the Proposed Letter on behalf of Mr Culhaci. Section 249P(1) provides as follows: "Members may request a company to give to all its members a statement provided by the members making the request about: (a) a resolution that is proposed to be moved at a general meeting, or (b) any other matter that may properly be considered at a general meeting." Under s 249P(3): "the request must be: (a) in writing; and (b) signed by the members making the request; and (c) be given to the company." While, as I have said, there may be some doubt, I am satisfied that s 249P(3) was complied with. 16 Section 249P(6) provides as follows: "After receiving the request, the company must distribute to all its members a copy of the statement at the same time, or as soon as practicable afterwards and in the same way, as it gives notice of a general meeting." However, under s 249P(9), the Company need not comply with the request if the statement is, inter alia, defamatory. 17 On 2 November 2001, Blake Dawson Waldron wrote to the Company and to Hopwood Ganim referring to the requisition and the Proposed Letter and saying: "Please confirm in writing that the Notice and letter will be or has been sent to shareholders in respect to the Annual General Meeting to be convened on 7 December 2001." In the event it was not included with the notice of the Annual General Meeting. 18 However on 20 November 2001, Hopwood Ganim wrote to Blake Dawson Waldron saying: "Telco is now proceeding with preparation of the Notice of Meeting in terms of the requisition delivered. We are instructed to advise that the approval of the ASX will be needed to the Notice of Meeting and relevant accompanying materials. In that regard we have examined the contents of the acompanying letter delivered pursuant to section 249P of the Corporations Act. Your client's attention is drawn to section 249P(9)(a) of the Corporations Act. In our opinion, under the laws of defamation as we understand them, the contents of that letter are clearly capable of bearing a defamatory meaning. Accordingly, Telco does not intend to issue the letter on the basis that it is not obliged to do so by virtue of section 249P(9)(a). Of course, it is open to your client to circulate that letter itself, but your client is on notice that if it intends to do so, that it ought to be alive to the consequences of wide spread publication of defamatory material." There was no express response to the assertion that the proposed letter was defamatory. 19 On 5 December 2001, Hopwood Ganim again wrote to Blake Dawson Waldron saying: "Notwithstanding the deficiencies in your clients (sic) requisition, Telco has convened a general meeting for 11 January 2001 to consider your clients (sic) proposed resolutions. The materials have been approved by ASX and will be dispatched shortly. It is open to your clients [sic] to take all steps they consider appropriate in relation to that meeting to secure control of Telco on 11 January 2001. To the extent that your client intends carrying out the threats raised in your letter to achieve that end, we would ask that they do so on notice to us." 20 The letter, if the assertions in it are true, would give rise to some disquiet as to the management of the affairs of the Company. I say nothing about the correctness of the assertions because I have had no evidence on those matters. However, the fact that the assertions do give rise to disquiet indicates that at least it is fairly arguable that the proposed letter gives rise to imputations that the affairs of the Company were not being conducted properly. That is capable of being defamatory of those responsible for the management of the affairs of the Company, namely the directors. 21 Section 249P(9)(A) excuses a company from complying with a request to circulate a statement if the statement is defamatory, whether or not the publication of such a statement would be the subject of a defence. However this proceeding was not commenced until yesterday. Mr Culhaci's and Wealthwise's solicitors were aware in November of the stance taken by the Company that the Proposed Letter would not be circulated because it was defamatory. No objection was taken to that stance. It would have been open to take steps many weeks ago in order to ensure compliance with s 249P, if indeed the failure to include the Proposed Letter was a failure to comply with that provision. 22 Having regard to the lateness of the commencement of this proceeding in relation to the matter, and assuming that it could be established that there was in fact a failure to comply with the section, I would refuse relief. 23 Next, it is alleged that the holding of the meeting on 11 January 2002 is oppressive because of the inconvenience of the date. The assertion is made that many people are on vacation and that it would be inconvenient for them to attend the meeting. There may be something in such an assertion in the sense that it is notorious that much commercial business comes to a standstill in Australia during January. Nevertheless, notice of the meeting was in fact given on 5 December 2001. There can be no suggestion that people of business are not fully engaged prior to the Christmas break. I do not consider that 11 January is so close to traditional Christmas and New Year holidays as to suggest that it would be oppressive or improper to convene an extraordinary meeting of a public company for 11 January. I do not regard this complaint as having been made out. 24 Finally, it is said that there is a risk that substantial shareholders have been misled by defamatory comments alleged to have been made about Mr Culhaci. Mr Culhaci and the second applicant rely on statements said to have been made on 11 December 2001. The respondents have not denied those claims. Mr Culhaci said that on 10 December 2001, Mr Morry Fraid said to Mr Siegfrid Konig in a telephone conversation that he had Mr Culhaci with him and who had raised a number of issues. Mr Fraid asked if he could arrange a conference call on the following day. He asked whether it would be all right if Mr Culhaci was present. Mr Konig said that he would arrange a call. 25 On the following day at 9.15am, a conference call took place between Mr Konig and Mr Moller, a solicitor from Hopwood Ganim, on the one hand, and Mr Culhaci, Mr Fraid and Mr Don Hilton on the other. Mr Konig and Mr Moller were in Brisbane. Messrs Culhaci, Fraid and Hilton were in Melbourne. Messrs Fraid and Hilton are directors and executives of three major shareholders of the Company, namely Spotlight On Line Pty Limited, Danewell Pty Limited and Spotlight Stores Pty Limited. They are among the top twenty larger shareholders of the Company. 26 In the course of that discussion, Mr Fraid said that Mr Culhaci had given him a questionnaire asking directors to verify a number of concerns about a massive adjustment to the revenues of the Company. Mr Fraid said that he was concerned about his investment in the Company. Mr Konig replied: "You should not take Daniel Culhaci seriously. I don't know what to do with him. He is a self confessed drug addict who is hell bent on taking control of Telco." Although he was present and heard that assertion, Mr Culhaci did not deny it at the time. However, he clearly had ample opportunity after the telephone conference finished to deny any matters that were alleged in the conversation. 27 Mr Culhaci invites me to draw an inference that Mr Konig may have made similar comments to other shareholders. In the absence of any other evidence I am not prepared to draw that inference. So far as the people who were present at the conference were concerned, Mr Culhaci had ample opportunity then to deny any of the assertions that were made. In the circumstances I do not consider that this gives rise to any basis of the relief claimed. 28 The provisions upon which the relief is based, as I have said, are ss 1324 and 233. Section 233 authorises the Court to make such orders as it considers appropriate in relation to a company where the conduct of that company's affairs or an actual proposed act or omission by or on behalf of that company or a resolution or a proposed resolution is either contrary to the interests of the members as a whole or is oppressive to, unfairly prejudicial to or unfairly discriminatory against a member or members. In the circumstances, I do not consider that any of the conduct alleged by Mr Culhaci falls within s 233. 29 Section 1324 authorises the Court to grant injunctions where a person is engaged, is engaging or is proposing to engage in conduct that constitutes or would constitute a contravention of the Act. As I have said, an argument has been advanced that the failure to include the Proposed Letter constitutes a contravention of s 249P(6) of the Act. As I have indicated I consider that it is reasonably arguable that the exception in s 249P(9)(a) applies. However, in the circumstances, I would decline to grant any relief at this late stage as a matter of discretion . 30 In the circumstances I consider the application should be dismissed. I certify that the preceding thirty (30) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Emmett.