Skliros v Lefcadian Brotherhood Pty Ltd [2003] FCA 865

FEDERAL COURT OF AUSTRALIA

Skliros v Lefcadian Brotherhood Pty Ltd [2003] FCA 865 CORPORATIONS – s 249G(1) – convening a meeting in the absence of a controlling board – ancillary orders – members – whether new members admitted Corporations Act 2001 (Cth) s 249G(1)

Bailey v Marinoff (1971) 125 CLR 529 referred to KATHY SKLIROS and CHRISTOPHER VLAHOS (AS A REPRESENTATIVE) v THE LEFCADIAN BROTHERHOOD PTY LTD V 3174 of 2003 FINKELSTEIN J 20 AUGUST 2003 MELBOURNE

IN THE FEDERAL COURT OF AUSTRALIA

VICTORIA DISTRICT REGISTRY V 3174 of 2003

In the matter of The Lefcadian Brotherhood Pty Ltd

BETWEEN: KATHY SKLIROS and

CHRISTOPHER VLAHOS (as a representative)

Plaintiffs

AND: THE LEFCADIAN BROTHERHOOD PTY LTD

Defendant

JUDGE: FINKELSTEIN J

DATE OF ORDER: 1 AUGUST 2003

WHERE MADE: MELBOURNE

THE COURT ORDERS THAT:

1. The plaintiffs be granted leave to amend para 2 of the originating application so that it reads:

"Alternatively, an order that para 4(c)(i) of the orders made by Justice Finkelstein on 23 June 2003 in proceeding no. V3126 of 2003 be amended by substituting '23 July 2003' for '20 July 2003'".

2. The application be dismissed.

3. The plaintiffs pay the defendant's taxed costs of the application.

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

IN THE FEDERAL COURT OF AUSTRALIA

VICTORIA DISTRICT REGISTRY V 3174 of 2003

In the matter of The Lefcadian Brotherhood Pty Ltd

BETWEEN: KATHY SKLIROS and

CHRISTOPHER VLAHOS (as a representative)

Plaintiffs

AND: THE LEFCADIAN BROTHERHOOD PTY LTD

Defendant

JUDGE: FINKELSTEIN J

DATE: 20 AUGUST 2003

PLACE: MELBOURNE

REASONS FOR JUDGMENT 1 The Lefcadian Brotherhood Pty Ltd, which was incorporated in 1965, is an organisation of Australian residents who descend from the islands of Lefcas or Meganissi in Greece. The objects of the company are, among others, to assist poor or sick members of the Brotherhood, to give financial assistance to destitute members and their families and to contribute to the education of children of poor members. The Brotherhood's ability to carry out these objects has stalled. Two factions are vying for control of the company. Neither faction has any real knowledge of how to manage a company's affairs. So the dispute has reached the court, both at the expense, and to the disadvantage, of ordinary members. 2 The first issue that arose related to the composition of the board. One faction, apparently led by Mr Rombotis, claimed that it was elected at a meeting of members held on 19 January 2003. The other faction, whose spokesperson is Ms Skliros, contended that they were elected at a meeting on 18 May 2003. Both groups sought an order which would have effectively placed their respective faction in control of the Brotherhood. It soon became apparent, however, that neither group had been validly elected. The election of Mr Rombotis' group was defective in several respects. One fatal deficiency was that members who were entitled to vote at the election were denied this right and that these excluded votes could have affected the outcome. The election of the Skliros group was invalid because the notice convening the meeting at which the election was held did not advise members that there would be an election. 3 As I was confronted with an organisation that had no controlling board I informed the parties that I was inclined, to (1) make orders under s 249G(1) that there be a meeting to elect a new board and (2) give directions as to the convening and conduct of that meeting. I also indicated that I would appoint an interim board to run the Brotherhood during the intervening period. Although s 249G(1) had primarily been used when it has been impracticable for the shareholders to call or conduct a meeting in accordance with the company's constitution, I could see no reason why the section could not also be used when the company did not have a controlling board. 4 Recognising the impossible situation they were in, the parties in effect consented to orders that would regularise the position. Relevantly, the orders provided (1) that there would be an extraordinary general meeting on 3 August 2003 to elect a new board and (2) that only financial and contributory members who were not in arrears in payment of their membership subscriptions as at 20 July 2003 would be eligible to vote at the meeting. In addition, Mr Fatouros (as Chairman), Mr Rombotis and Ms Skliros were appointed as an interim board. 5 Once those orders were made, each faction consolidated its position by what in political circles is known as "branch stacking", that is by introducing new members with the view of increasing its vote. Consequently, in the last few weeks hundreds of new members have been admitted into the Brotherhood. This application arose out of an attempt by the Skliros faction to secure 402 new members before midnight on 20 July 2003, which was the cut off point for new members. The question at issue was whether the interim board, at a meeting held on 20 July 2003, approved these applications. Mr Vlahos, who represents this group, and Ms Skliros asserted that the applications were approved. The remaining board members were of a different view. 6 A trial was held on Friday 1 August, two days before the scheduled meeting. At the conclusion of the trial I found that that the 402 persons had not been admitted to membership and dismissed the application which had asked for a declaration to the opposite effect. I indicated that I would deliver reasons in due course. What follows are those reasons. 7 First, it is necessary to set out what transpired at the meeting. To a large extent the facts are not in dispute. The interim board resolved to hold the meeting on 20 July 2003 at 2.00pm. Mr Fatouros and Mr Rombotis attended at the designated time. Ms Skliros telephoned to advise that she would be late. Given that Ms Skliros had not arrived by 3.15pm, the other directors decided to hold the meeting in her absence. At this meeting 169 new membership applications were considered and approved. The meeting closed at approximately 4.00pm. Ms Skliros arrived shortly thereafter. She had in her possession applications for the renewal of 115 memberships as well as 402 applications for new memberships. Mr Fatouros and Mr Rombotis could not consider these applications at that time as they had commitments elsewhere. They informed Ms Skliros that the applications would be considered at 10.00pm that evening. 8 Mr Fatouros and Mr Rombotis returned to the Brotherhood's premises at about 10.00pm. Ms Skliros arrived at around 11.00pm. Mr Rombotis said that he informed Ms Skliros that because of the lateness of the hour it was not possible for the board to consider the new applications. He suggested that the names of the applicants be added to the existing register of members "pending approval" and that their eligibility would be considered at a later time. Ms Skliros' recollection of the conversation substantially accords with that of Mr Rombotis. She said that she asked Messrs Fatouros and Rombotis when they were going to examine the application forms and Mr Rombotis replied that this "could be done at a later meeting". Mr Fatouros' version of the conversation is as follows: "At no stage did Kathy Skliros ever formally submit the 402 new member application forms that formed the subject of this proceeding to the Interim Board of Directors for their approval before 23 July 2003. Formal submission of the abovementioned application forms took place at the meeting of the Interim Board of Directors on 23 July 2003 after Spiros Rombotis requested this of Kathy Skliros and the applicants were approved as members of the Brotherhood." 9 The directors prepared and signed a document in which they recorded what had transpired. The document reads: "On 20 July 2003 (midnight) the following entries are added to the register comprising of new members to be confirmed at the next meeting after perusing the application. Late fees collected membership renewals and beyond: (a) new membership (b) late fees (c) renewals. For the last receipts used in the three current receipt books are 1188, 1505 and 1003." 10 Ms Skliros did not believe that the directors approved the applications at the meeting. This is apparent from a letter written by Ms Skliros' solicitors on 22 July 2003 which states: "We are instructed that Ms Skliros returned at approximately 11.00pm and waited until midnight. She informed both Mr Fatouros and Mr Rombotis the number of member applications she had together with the amount of money received. At 1.30am Monday morning the three board directors departed from the club premises without approving any applications. …" 11 It is evident that the board did not approve the 402 applications. For a person to become a member of the Brotherhood the following must occur. Under Article 3 of the Articles of Association, an applicant must submit an application for membership and the appropriate fee to the Secretary. The board may then consider the application. In that regard, the board must determine whether the applicant satisfies the criteria for membership, namely (1) that the applicant is a resident of Australia who was born on the islands of Lefcas or Meganissi, or is a descendent of such a person; and (2) that the applicant is over the age of eighteen. If both criteria are satisfied the board must then determine whether to approve the application for membership. The board did not take these steps in relation to the 402 applications. That is, the board did not consider whether any of the applicants satisfied the criteria for membership. Further, assuming the applicants met the criteria, the board did not consider whether, as a matter of discretion, any of them should be approved for membership. 12 As an alternative, Ms Skliros' group sought a variation of the orders made on 23 June 2003. As previously mentioned one of those orders provided that the only members of the Brotherhood who were entitled to vote at the election where those whose membership was current as at 20 July 2003. Ms Skliros' group sought to amend the order by substituting "23 July 2003" for "20 July 2003". It was not in dispute that I had the power to make the variation. See Bailey v Marinoff (1971) 125 CLR 529, 539-540 per Gibbs J: ("[A] court may amend part of a judgment or an order which is 'not the operative and substantial part'"). (Citations omitted). I declined to vary the order. I did so for the following reasons. 13 First, Ms Skliros did not submit the applications in a timely fashion. If she had they would have been dealt with on 20 July 2003. The plaintiffs cannot complain about what transpired when the failure to have the applications considered was the result of Ms Skliros' late attendance at the meeting. Secondly, the plaintiffs will suffer no prejudice by the fact that their applications were not approved on 20 July 2003. It is true that the plaintiffs were unable to vote at the election. However, the 402 applicants were approved as members on 23 July 2003 and they are now entitled to exercise all the rights that attach to their membership, including the right to vote at future elections. Consequently, nothing has really been lost by the new members except, perhaps, some time. I certify that the preceding thirteen (13) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Finkelstein.