Supreme Court New South Wales Medium Neutral Citation: In the matter of Lorebray Pty Ltd [2021] NSWSC 1533 Hearing dates: 23 November 2021 Date of orders: 23 November 2021 Decision date: 23 November 2021 Jurisdiction: Equity - Corporations List Before: Black J Decision: Court declares the appointment of the directors to have been valid and that resolutions passed at meetings with a quorum of two directors are not invalid on that basis. Catchwords: CORPORATIONS — Meeting of members — Resolutions — Where deed of settlement and release required the parties to take reasonable steps to ensure that certain persons would be directors of the company and associated companies — Inconsistency between constitution and shareholders agreement as to quorum — Where constitution provided for quorum of two directors — Where shareholders agreement provided for quorum of three directors, being all the company's directors — Whether company can hold quorate board meeting in the circumstances — Where one director representing a shareholder has resigned and replacement appointee does not accept appointment. CORPORATIONS — Directors and officers — Appointment, removal and retirement of directors — Where the relevant shareholders were parties to deed of settlement and release — Where deed of settlement required the execution of certain directorship documents — Whether s 249A of the Corporations Act 2001 (Cth) applies — Where general law concept of unanimous consent or s 1322(4) of the Corporations Act 2001 (Cth) otherwise applies. Legislation Cited: - Corporations Act 2001 (Cth), ss 249A, 1322 Cases Cited: - Australian Broadcasting Commission v Australasian Performing Right Association Ltd (1973) 129 CLR 99; [1973] HCA 36 - Aveo Group Ltd v State Street Australia Ltd [2015] FCA 1019 - Citi Project Marketing (Qld) Pty Ltd v VG Projects Pty Ltd [2018] 1 Qd R 100; [2017] QSC 065 - Donaldson v Natural Springs Australia Ltd [2015] FCA 498 - Eastone Mining Pty Ltd v Eastone Holding Pty Ltd (2019) 142 ACSR 38; [2019] NSWSC 1850 - Elders Forestry Ltd v Bosi Security Services Ltd (2010) 242 FLR 360; (2010) 80 ACSR 122; [2010] SASC 223 - Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640; (2014) 306 ALR 25; [2014] HCA 7 - Forster v Jododex Australia Pty Ltd (1972) 127 CLR 421; [1972] HCA 61 - Hawcroft v Jamieson [2017] NSWSC 1478 - HDI Global Specialty SE v Wonkana No 3 Pty Ltd [2020] NSWCA 296 - Lion Nathan Australia Pty Ltd v Coopers Brewery Ltd (2006) 156 FCR 1; (2006) 236 ALR 561; [2006] FCAFC 144 - Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104; (2015) 325 ALR 188; [2015] HCA 37 - Re Lesso Building Material Trading (Sydney) Pty Ltd (admins apptd) [2018] NSWSC 1486 - Re Rectron Electronics Pty Ltd [2013] VSC 384 - Toll (FGCT) Pty Ltd, v Alphapharm Pty Ltd (2014) - 219 CLR 165; (2004) 211 ALR 342; [2004] HCA 52 - Weinstock v Beck (2013) 251 CLR 396; (2013) 93 ACSR 231; [2013] HCA 14 - Zhang v ROC Services (NSW) Pty Ltd (2016) 93 NSWLR 561; [2016] NSWCA 370 Category: Principal judgment Parties: Originating Process McMardi Pty Ltd (Plaintiff) Red Hill MCN Pty Ltd (First Defendant) Lorebray Pty Ltd (Second Defendant) Interlocutory Process filed 17 November 2021 McMardi Pty Ltd (Applicant) Red Hill Pty Ltd (First Respondent) Lorebray Pty Ltd (Second Respondent) Lorebrook Pty Ltd (Third Respondent) Wonga Pastoral Development Company Pty Ltd (Fourth Respondent) J & M McNamee Holdings Pty Ltd (Fifth Respondent) McNamee International Pty Ltd (Sixth Respondent) Reedprop Pty Ltd (Seventh Respondent) Brenden Miller (Eighth Respondent) William McNamee (Ninth Respondent) Stephen McNamee (Tenth Respondent) Representation: Counsel: R Scruby SC (Plaintiff) H Cooper (First Defendant) Solicitors: Henry Williams Lawyers (Plaintiff) Allsop Glover Lawyers (First Defendant) File Number(s): 2021/131663 Judgment – ex tempore (Revised 24 November 2021) Nature of the application 1. By Amended Originating Process filed by leave today, the Plaintiff, McMardi Pty Ltd ("McMardi") seeks two declarations. The first is that, while the First Defendant, Red Hill MCN Pty Ltd ("Red Hill") fails to appoint a representative to the board of the Second Defendant, Lorebray Pty Ltd ("Company"), no resolution of the Company's board of directors is invalid only by reason of being passed at a meeting at which there was a quorum of two directors. The second is a declaration that the resolutions passed by the Company's board of directors at its meeting held on 13 May 2021 at 4.30 pm are not invalid by reason of being passed at a meeting at which there was a quorum of two directors, although that might perhaps be more precisely put as invalid only by reason of that matter. It is common ground between the parties that there is a continuing dispute as to the validity of at least some of the resolutions passed at that meeting, which have continued operative effect, so that there is an ongoing dispute between the parties which would be resolved by the grant of declaratory relief as to the validity of those resolutions. 2. The issues in respect of the declarations sought, and the validity of the resolutions passed on 13 May 2021, were addressed in written submissions by Counsel for McMardi, Mr Scruby, and Counsel for Red Hill, Mr Condon and Mr Cooper (although Mr Cooper appeared at the hearing). The Company did not take an active role in respect of this issue, and was excused from attendance. A further matter, to be addressed by Interlocutory Processes also listed for hearing today, goes to the validity of the original appointment of the Company's directors. Mr Cooper rightly pointed out that that question is, strictly, logically anterior to the operative effect of the passage of the resolutions at the meeting on 13 May 2021, although the parties have reached a consent position that the directors were either validly appointed, or orders should be made under s 1322 of the Corporations Act 2001 (Cth) validating that appointment. The question of construction which is in issue between the parties is not affected by the validity of any particular director's appointment. I will defer making orders in respect of the Amended Originating Process, in case its outcome is ultimately affected by the validity of the directors' appointment. The evidentiary background 1. The parties did not read affidavit evidence in respect of the issues in dispute, although affidavit evidence had been filed. They tendered a number of documents relevant to the matters in dispute. McMardi tendered the minutes of the directors' meeting held on 13 May 2021 as to which declaratory relief is sought, and it is common ground that there is at least a dispute as to the ongoing validity of motions 7-9 passed at that directors' meeting. McMardi also tendered the Company's constituent documents, its memorandum and articles of association, and a Deed of Settlement and Release and Shareholders Agreement which are in issue in the proceedings. Clause 73 of the Company's articles of association relevantly provides, in clear terms, that: "At a meeting of Directors, the number of Directors whose presence is necessary to constitute a quorum is such number as is determined by the Directors and, unless so determined, is two (2)." 1. It is common ground that there has been no contrary determination by directors and, in terms, the constitution provides for a quorum of two for a directors' meeting. 2. By that Deed of Settlement and Release, a number of persons and companies associated with the McNamee family, including the Company, McMardi, Red Hill and persons associated with those companies, and the late Mr John McNamee (by his tutor) and Mrs Margaret McNamee, the then shareholders in the Company, reached agreement to resolve a series of previous disputes between them, including disputes as to control of relevant corporate entities. By cl 3.1 of that Deed of Settlement and Release, the parties agreed that, and agreed to take reasonable steps to ensure that, on and from the date of the Deed, the Independent Director (as defined), Mr Stephen McNamee ("Stephen") (and, in the event of his death or incapacity, another person) and Mr Bill McNamee ("Bill") (and in the event of his death or incapacity, another person) would be the directors of the Company and other associated companies. Clause 3.3 in turn provided that the parties agreed to be bound by the terms of the Shareholders Agreement on and from the date of the Deed, and recorded that that Shareholders Agreement would include terms that at all times there was to be a representative of McMardi on the one hand and Red Hill on the other in addition to the Independent Director or his successor on the board of directors of, relevantly, the Company. 3. That position was in turn reflected in the Shareholders Agreement also dated 3 December 2019, to which the company, McMardi, Red Hill, associated individuals, and Mr John McNamee and Mrs Margaret McNamee were again parties. That Agreement recited the shareholders in the particular companies, and recorded, consistent with evidence that has been led by way of company search (Ex P3) that Mr John McNamee and Mrs Margaret McNamee were then the shareholders in the Company, with each holding one of the two ordinary shares in the company. Recital E recorded the commencement of proceedings in this Court and recital F noted the settlement of the proceedings on the terms recorded in the Deed of Settlement and Release. Cl 3.1 relevantly provided that: "This agreement shall be read in conjunction with the Constitution. Where there is any inconsistency between the Constitution and this agreement, this agreement shall prevail." 1. The term "Constitution" was defined as the memorandum and articles of association of the relevant company. As I observed in respect of a similar clause in Re Lesso Building Material Trading (Sydney) Pty Ltd [2018] NSWSC 1486 at [9], a provision which contemplates that the shareholders agreement prevails in the event of inconsistency between it and the constitution, implicitly recognises the possibility of continuing inconsistency between the constitution and the shareholders agreement, and to that extent recognises that the constitution and the shareholders agreement each have continuing effect in a way that may give rise to such inconsistency. That is inconsistent, on one view, with the proposition put by Red Hill in these proceedings, that the Shareholders Agreement amended the Company's constitution because, if it did so, there would be no need for the Shareholders Agreement to prevail over the constitution, because the amendment would extinguish the inconsistency. 2. Returning to the terms of the Shareholders Agreement, cl 3.3 provided, in terms consistent with the Deed of Settlement and Release that, despite any other provision of a constitution or documents referable to the Company, at all times there is to be a representative of McMardi on the one hand and Red Hill on the other in addition to the Independent Director. That clause also contemplates the possibility of continuing inconsistency between the constitution and the Shareholders Agreement, in a manner which appears to be inconsistent with an amendment of the constitution by the Shareholders Agreement so as to extinguish such inconsistency. Clause 3.3.3 in turn provided that all decisions of the directors of the Company were to be made by majority resolution. 3. Clause 4 provided that the Shareholders Agreement took effect as and from the Commencement Date (as defined) and continued to govern the relationship of the members until terminated. Mr Scruby points out, and I accept, that that contemplated that the Shareholders Agreement would have ongoing effect, unless and until it could be terminated in accordance with the common law, where there are no provisions dealing with termination in the Shareholders Agreement. 4. Clause 8.1 in turn provided that meetings of the board were to be held at least every month, or more frequently, on specified notice, if any director required. Clause 8.3, which has given rise to the dispute in these proceedings, in turn provided that: "The quorum for a meeting of the Board is three (3) Directors, being all of the Company's directors." 1. I will return to the proper construction of that provision below. 2. Red Hill in turn tenders correspondence, including an email dated 31 March 2021 by which Stephen resigned as a director of the Company identifying his claimed reasons for his resignation, including his stated belief that the Company was insolvent and identified other issues of concern as to the manner in which the Company was then being managed. Red Hill also tenders financial statements for the year ended 30 June 2019 for the McNamee Property Trust, of which the Company is trustee, and the 2019 income tax returns for the Company, which are intended to give support for Stephen's stated view that the Company is insolvent. They demonstrate that, depending upon the position as to a substantial loan said to be due to another entity, Wonga Pastoral Developments Co Pty Ltd, the Company has an excess of liabilities over assets. That, of course, does not establish insolvency in itself, which depends upon the question whether the Company is able to pay its debts as and when they fall due on an ongoing basis, which raises questions of timing. There are many companies which have excess of liabilities over assets which are in fact solvent, and remain solvent in the long term, because they are able to meet their debts as and when they fall due. In any event, little turns upon this matter for present purposes, because there is no need for the Court to determine whether Stephen held the view that he claimed to hold, absent his giving evidence of it, or whether that view was reasonably based, or correct in fact, in order to determine these proceedings. I also note that the question of solvency, to the extent that it was raised by Stephen, had been a matter that was in issue in earlier proceedings in this Court, and was not determined in those proceedings when they were resolved by consent as between the parties. The construction issue in respect of quorum 1. The matter that is in dispute between the parties is in narrow scope. As I noted above, cl 73 of the Company's constitution provides that the quorum for a directors' meeting is two directors. Clause 8.3 of the Shareholders Agreement provides that the quorum for a meeting of the board is three directors, being all of the Company's directors. Stephen has resigned as a director of the Company, and the person whom the Shareholders Agreement contemplated would be appointed in his place has not accepted the appointment, so that the requirement in cl 73 of the Company's constitution in respect of the quorum for a directors' meeting can be satisfied, but the requirement in cl 8.3 of the Shareholders Agreement cannot be, if it applies where the board comprises less than three directors. The question, then, is whether the Shareholders Agreement now operates, by reason of cl 8.3, so that the Company cannot hold a quorate board meeting without a representative of Red Hill on the board, or whether quorate meetings can continue to be held, because cl 8.3 of the Shareholders Agreement no longer applies and the relevant meetings are quorate for the purposes of cl 73 of the Company's constitution. 2. This question raises questions of construction, primarily in respect of the Shareholders Agreement. The case law establishes that a company's constitution, and a shareholders agreement, should be read and construed as a whole and general principles of construction of commercial contracts are applicable to them; the commerciality of a particular construction may tip the balance in its favour where it is implausible that the parties could be taken to have intended otherwise; such a document should not be construed narrowly or pedantically; words used should be given their natural and ordinary meaning, and a construction of a provision which gives a congruent operation of the applicable provisions should be preferred to another which does not: Donaldson v Natural Springs Australia Ltd [2015] FCA 498 at [148]. There are limitations on the use of extrinsic evidence to construe a constitution, which may not apply in respect of a shareholders agreement: Lion Nathan Australia Pty Ltd v Coopers Brewery Ltd (2006) 156 FCR 1; (2006) 236 ALR 561; [2006] FCAFC 144; Aveo Group Ltd v State Street Australia Ltd [2015] FCA 1019 at [59]. Neither party seeks to lead extrinsic evidence in this application, beyond the commercial context recorded in the documents themselves. 3. The principles applicable to the construction of commercial contracts are in turn well established, and it seems to me that they provide greater assistance in resolving this proceeding than more specific matters to which Counsel referred in the course of submissions. In Australian Broadcasting Commission v Australasian Performing Right Association Ltd (1973) 129 CLR 99 at 109; [1973] HCA 36, Gibbs J (as his Honour then was) observed that: "It is trite law that the primary duty of a Court in construing a written contract is to endeavour to discover the intention of the parties from the words of the instrument in which the contract is embodied. Of course the whole of the instrument has to be considered, since the meaning of any one part of it may be revealed by other parts, and the words of every clause must if possible be construed so as to render them all harmonious one with another. If the words used are unambiguous the Court must give effect to them, notwithstanding that the result may appear capricious or unreasonable, and notwithstanding that it may be guessed or suspected that the parties intended something different. The Court has no power to re-make or amend a contract for the purpose of avoiding a result which is considered to be inconvenient or unjust. On the other hand, if the language is open to two constructions, that will be preferred which will avoid consequences which appear to be capricious, unreasonable, inconvenient or unjust." 1. A similar approach was taken by the High Court in Toll (FGCT) Pty Ltd, v Alphapharm Pty Ltd (2014) 219 CLR 165; (2004) 211 ALR 342; [2004] HCA 52 at [40] and again in Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640; (2014) 306 ALR 25; [2014] HCA 7 at [35], emphasising that the objective approach was to be adopted in determining the rights and liabilities of parties to a contract, and that the terms of a commercial contract were to be determined by what one reasonable business person would have understood those terms to mean. I proceed on the basis that construction should commence with the language used by the parties, as the High Court again emphasised in Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104; (2015) 325 ALR 188 [2015] HCA 37 at [46]-[52]. Mr Cooper also referred to the decision of the Court of Appeal in HDI Global Specialty SE v Wonkana No 3 Pty Ltd (2020) 104 NSWLR 634; [2020] NSWCA 296, where the Court observed that the intention of contractual language is to be discerned objectively from the language itself. It seems to me that the Court of Appeal's approach is consistent with that established by the other authorities to which I have referred, and the particular application of that authority to the construction of company constitutions and shareholders agreements to which I referred above. The parties' submissions 1. Turning now to the parties' submissions, but bearing in mind those principles of contractual construction, Mr Scruby points to the quorum for directors' meetings in cl 73 of the Company's constitution, being two directors, putting aside any question of any amendment to that constitution made by the Shareholders Agreement. He recognises that the Shareholders Agreement provides, in cl 3.3 to which I referred above, that, despite the provisions of the Company's constitution, there is at all times to be a representative of McMardi on one hand and Red Hill on the other, as well as the Independent Director, as directors on the Company's board. I have noted above that that position no longer prevails, notwithstanding that statement in cl 3.3 of the Shareholders Agreement, by reason of Stephen's resignation as a director of the Company. To the extent that that clause is statement of expectation, or extends to an obligation under cl 5.1 of the Shareholders Agreement, it is no longer fulfilled. Mr Scruby in turn recognises that cl 3.1 of the Shareholders Agreement requires it to be read in conjunction with the constitution and, where there is inconsistency, for it to prevail over the constitution. He also recognises that, as I noted above, cl 8.3 provides that the quorum for a meeting of the directors is three directors "being all of the company's directors". 2. Mr Scruby in turn advances three simple propositions, in support of the proposition that, where there are now only two directors on the Company's board because of Stephen's resignation, the quorum requirement under cl 73 of the Company's constitution applies, and the quorum requirement under the Shareholders Agreement is no longer applicable. 3. The first is that a quorum of two complies with the requirements of cl 73 of the Company's constitution, a matter which Mr Cooper for Red Hill accepts, and that is sufficient to prevent resolutions passed at a directors' meeting from being invalid regardless of whether the shareholders agreement requires a quorum of three. Mr Cooper of course does not accept the second aspect of that proposition. Mr Scruby submits, in support of that proposition, that the Shareholders Agreement does not vary the Company's constitution, and it is the constitution rather than the Shareholders Agreement that is the criterion of validity of a resolution, referring to my decision in Re Lesso Building Material Trading (Sydney) Pty Ltd (admins apptd) [2018] NSWSC 1486. 4. Mr Scruby's second proposition is that, in the present circumstances, cl 8.3 of the Shareholders Agreement does not apply to require a quorum of three directors. He submits that, on its face, that clause assumes that there are three directors of the Company, and only three directors, by the reference to "being all of the company's directors", and that the quorum of three in that clause should be construed as operating only when that assumption is correct. He submits that it would be commercially absurd to read that clause as requiring a quorum of three, where the further statement in that clause that those three directors would be "all of the company's directors" would not be satisfied, because there were only then two directors. 5. Mr Scruby also relies on the commercial purpose of the Shareholders Agreement, to be construed from the terms of that Agreement and the Deed of Settlement and Release, in resolving the disputes between the parties and allowing the Company to operate practically on a day to day basis notwithstanding those disputes, with the aid of an Independent Director, which he submits would be frustrated if either shareholder could, at will, deprive the board of a quorum if its representative director chose to resign. It seems to me that there is force in that submission, both as a matter of language and as a matter of the context of the Shareholders Agreement and the Deed of Settlement and Release, reinforced by the fact that the position for which Red Hill now contends has the consequence that, rather than a majority of the board (likely including the Independent Director, given the history of disputes between the parties) determining any contested issue, Red Hill would now exercise a power of veto, because it has indicated it will consent as a shareholder to directors' resolutions as to matters of which it approves and will not do so where it does not, turning the apparent purpose of the Deed of Settlement and Release and the Shareholders Agreement on its head. 6. Mr Scruby advances a third point as to the potential operation of s 1322(2) of the Corporations Act in respect of the resolutions passed at the meeting of directors held on 13 May 2021, and I will refer to that matter below, although it will ultimately not be necessary to decide it. 7. Mr Condon and Mr Cooper, for Red Hill, in turn submit that the terms of their Shareholders Agreement imposes a binding quorum requirement of three directors, implicitly, even if a shareholders' representative prevents that requirement being satisfied by resignation. That proposition is put despite the fact the three directors would not, in the language of cl 8.3 of the Shareholders Agreement be, "all of the company's directors", where the Company would then have only two directors. Mr Condon and Mr Cooper deal with that difficulty by, in effect, seeking to displace the words "being all of the company's directors" in cl 8.3 of the Shareholders Agreement as subordinate, or even surplusage to the relevant clause. 8. Mr Condon and Mr Cooper also refer to Red Hill's position that it will give its consent as shareholder to some directors' resolutions, as it has indicated it would do in respect of the 13 May meeting, but that only points to the fact that Red Hill's position amounts, in substance, to asserting a power veto over the resolutions for which it will not consent. Mr Condon and Mr Cooper also refer to the suggested justification for the Company's apprehended insolvency for Stephen's resignation, in order to displace any suggestion of a breach of any obligation to appoint a director under the Shareholders Agreement, but that matter cannot be determined as a matter of fact and on the evidence before the Court in this application, and I found above that it is not necessary to determine it. 9. Mr Condon and Mr Cooper accept that it is plainly correct that the passage of a resolution by two directors would meet the requirement of cl 73 of the Company's constitution. They also accept that the Shareholders Agreement does not expressly vary that constitution, but point to the provision that the Shareholders Agreement prevails in the effect of inconsistency, and contend that the reference in cl 8.3 to a quorum of three (again giving no weight to the words "being all of the company's directors") amounts to an amendment of the constitution, by the application of principles of unanimous consent. I recognise that some of the case law has accepted that, in some circumstances, a Shareholders Agreement may amount to an amendment of a company's constitution, through unanimous consent principles: Re Rectron Electronics Pty Ltd [2013] VSC 384 at 68, and also noted by Rees J in Eastone Mining Pty Ltd v Eastone Holding Pty Limited (2019) 142 ACSR 38; [2019] NSWSC 1850 at [53]. I pointed above to a difficulty with that approach here, namely that the reference to the Shareholders Agreement prevailing appears to assume a continued inconsistency, rather than a process of amendment by which the Shareholders Agreement and the constitution would no longer be inconsistent. 10. Mr Condon and Mr Cooper then develop an elaborate submission as to the construction of cl 8.3 of the Shareholders Agreement, supported by a lengthy exegesis of the concept of "nominative absolute" in English grammar. So far as I am aware, this concept has not often been the subject of frequent discussion amongst proponents of plain English legal drafting in recent years. Mr Condon and Mr Cooper submit that the reference to "being all of company's directors" in cl 8.3 of the Shareholders Agreement should be read as not limiting an absolute requirement in the first part of the clause that the quorum for the meeting of the board is three directors. 11. Mr Condon and Mr Cooper refer, in support of that proposition, to the explanation of the concept of "nominative absolute" in HW Fowler, Fowler's Modern English Usage (revd by Sir Ernest Gowers), 2nd Ed 1965, at p 4. They also draw in aid an observation of Leeming JA in Zhang v ROC Services (NSW) Pty Ltd (2016) 93 NSWLR 561; [2016] NSWCA 370 at [70] that "competent speakers apply and understand the subtle rules of grammar even though they might not realise it". While I would, of course, give the greatest respect to any observation of Leeming JA, it might still be thought that the extent of the application of rules of grammar in the Australian populace is a matter of fact requiring empirical investigation, not a question of law. His Honour's observation also applies only to the "competent speaker" of the English language and would be applicable here only to those competent speakers of the English language who have a ready intuitive understanding of the rules attaching to nominative absolute clauses. The number of such persons is, perhaps, unknown. 12. I do not accept Mr Condon's and Mr Cooper's submission in this respect, and I find greater assistance in the well-established principles of construction of commercial contracts, as applied to company constitutions and shareholder agreements, to which I have referred above. It seems to me that, applying those principles, there is no inconsistency between the Company's constitution and the Shareholders Agreement in the relevant circumstances. The constitution provides for a quorum of two, and that requirement operates in all circumstances. The Shareholders Agreement provides, in cl 8.3, for a quorum of three, where there are three directors and it can properly be said that those three directors are "all of the company's directors". It seems to me that that approach gives proper effect to the language of the clause, since otherwise the words, "being all of the company's directors" are effectively read out of the clause. 13. There is no inconsistency between the two provisions because, where cl 8.3 of the Shareholders Agreement applies, that is, where three directors are all of the Company's directors, then the quorum requirement in the Company's constitution will also be satisfied. That reading of cl 8.3 of the Shareholders Agreement is also consistent with the parties' objective intentions, to be discovered from the words of the clause and the operation of the Shareholders Agreement as a whole, recognising the commercial context in the attempted resolution of the disputes between them. It seems to me that the Shareholders Agreement as a whole, and cl 8.3 in particular, were part of a framework that was intended to establish an ongoing workable governance framework for the Company, assisted by the Independent Director, where it was predictable given the parties' history that the directors appointed by each of McMardi and Red Hill could take different views, as has since occurred. There is no reason to think that the parties, reading their agreement objectively, would have intended to reach a resolution that was so fragile that it could be frustrated by the director representing either party resigning, for good reason or not, leaving that party to exercise a right of veto as a shareholder, by giving or withholding consent to resolutions of the board as it chose. 14. Mr Scruby advances a further contention, as to the potential interdependence of any obligation under cl 8.3 of the Shareholders Agreement and cl 3.3 of the Shareholders Agreement, in respect of the appointment of directors. It is not necessary to address that contention, given the conclusions that I have reached above. I do note that there is a potential difficulty with that contention, where cl 3.3 or 8.3 of the Shareholders Agreement are not expressed as imposing an obligation on any particular party, which is capable of being interdependent with any obligation of any other party, and cl 8.3 in particular is directed to a statement of a quorum which does not have an express element of obligation about it. 15. In summary, it does not seem to me to be necessary to decide whether the Shareholders Agreement amended, or simply operates beside, the Company's constitution. I have noted above that there are some cases that accept the possibility of amendment, although there remains the difficulty recognised in the case law as to how an amendment by unanimous consent would comply with s 136 of the Corporations Act, a matter that was noted in Elders Forestry Ltd v Bosi Security Services Ltd (2016) 242 FLR 360; (2016) 80 ACSR 122; [2010] SASC 233 at [76]-[77], and in Lesso at [22]. If it were necessary to decide that matter, I am inclined to the view that here the Shareholders Agreement did not amend the constitution, but simply provided, in its terms, that it would prevail over it if a relevant inconsistency existed. 16. Whether or not the Shareholders Agreement amended the constitution, or simply operated beside it and prevailed over it, it seems to me that no inconsistency arises here, because the Shareholders Agreement provides for a quorum of three only where it can be said that that is "all of the company's directors", and in that situation the quorum requirement in the Company's constitution will also be satisfied. In any other situation, including the situation where one of the directors has resigned, leaving two directors only in place, cl 8.3 of the Shareholders Agreement no longer applies, and the constitution operates without contradiction by it. That conclusion is sufficient to have the result that, here, the resolutions passed by two directors, being a director representing McMardi and the Independent Director are valid under the Company's constitution, including the resolutions passed at the 13 May meeting, because cl 8.3 of the Shareholders Agreement has no application where the other director representing Red Hill has resigned. 17. It is not necessary to address the operation of s 1322 of the Act in those circumstances, although it seems to me that there is force in Mr Scruby's proposition that s 1322(2) would be capable of applying, at least in respect of the 13 May meeting, and that s 1322(4) would also be capable of applying, in the manner noted in Citi Project Marketing (QLD) Pty Ltd v VG Projects Pty Ltd [2018] 1 Qd R 100; [2017] QSC 065 and in Lesso at [28]. Here, the absence of a quorum is properly characterised as a procedural irregularity and it is strongly arguable that there would be no substantial injustice to Red Hill, where the absence of a quorum results from Stephen's deliberate decision to resign as a director. I note, for completeness, that even if the Company's suggested insolvency were established, tthat would not be addressed by Stephen's resignation, rather than an appointment of a provisional liquidator or a winding up on the just and equitable grounds. Declaratory relief 1. I note, for completeness, that Mr Condon and Mr Cooper had originally put in their written submissions, but did not press in oral submissions, a submission as to the Court's discretion to withhold declaratory relief, referring to Forster v Jododex Australia Pty Ltd (1972) 127 CLR 421; [1972] HCA 61. I am satisfied that, here, the Court should properly exercise its discretion to make the declaration sought, where it is common ground there is a real dispute between the parties as to the status of resolutions passed at the 13 May meeting. However, it does not follow that the Court should determine continuing disputes between the parties as to the validity of acts undertaken in respect of the Company's affairs, applying scarce resources funded by the community to a continuing flow of internal disputes within the Company. The parties should anticipate that, if their disputes continue and absent a winding up of the Company on the just and equitable ground, then the Court may well exercise its discretion in further matters to withhold declaratory relief. Orders as to this aspect of the proceedings 1. I will defer making orders in respect of this aspect of the proceedings until I have determined the position in respect of the validity of the appointment of the Company's directors since, strictly, it would not be necessary to make orders, or possible to do so, in respect of the 13 May meeting if the Company did not have validity appointed directors at any relevant time. I will then make orders to give effect to this judgment if the directors' appointment has been shown to be valid or has been validated. Validity of appointment of directors to Lorebray and other companies 1. By Interlocutory Process filed on 17 November 2021, McMardi also applies for a declaration that Mr Miller, Stephen and Bill were validly appointed as directors of six companies, including the Company. Each of those companies has been joined as respondents to the Interlocutory Process. Red Hill, which is the other shareholder of all but one of the companies, is the First Respondent in the application. In respect of that other company, Wonga Pastoral Pty Ltd, the relevant shareholders are two other companies which are respondents to the application, together with Mrs Margaret McNamee and the late Mr John McNamee. Mr Miller, Bill and Stephen are also respondents to the application, so far as they would be affected by the validation of their appointment as directors. 2. The application is sought on two alternate bases, either that the appointment was valid in its terms, by reference to s 249A of the Act or alternatively that it should be validated under s 1322 of the Act. There was originally a contest as to this matter, and Red Hill had previously filed an Interlocutory Process that sought a declaration that neither Bill nor Mr Miller had been validly appointed as a director of the Company, but did not deal with the corresponding position in respect of other companies. Red Hill now accepts that the orders sought by McMardi may be made by consent, although the Court must still be satisfied that it has the jurisdiction to make them, at least so far as they require an active exercise of discretion. 3. The difficulty which has arisen in respect of the appointment is straightforward enough. By way of example, cl 62 of the Company's memorandum and articles of association provides that the Company may by resolution remove a director and by resolution appoint another director in his stead. The reference to "the company" is there to the company acting in general meeting, and that article is of course in common form. By a Deed of Settlement and Release made between McMardi, Red Hill, the companies and various individuals within the McNamee family, including Mr John McNamee by his tutor and Mrs Margaret McNamee, the parties agreed in cl 3.1 that they would take all reasonable steps, "including the execution of the Directorship documents" to ensure that the Independent Director, relevantly Mr Miller, Stephen and Bill, would be the directors of the relevant companies. The term "Directorship documents" was defined as a consent to act as, or resignation, as officeholder of a company including in Annexure C to the deed. Annexure C to the Deed included a long list of documents, dealing in respect of the majority of the companies with the appointment of officers, identified as Mr Miller, Stephen and Bill, the resignation of directors, generally identified as Mr John McNamee and Mrs Margaret McNamee, and in some cases share transfers. Executed copies of the relevant documents are in evidence (Ex P1) and it is common ground that those documents are the documents that were exhibited to the Deed of Settlement and Release. 4. The documents include circulating resolutions of directors of the companies, sometimes signed only by Mrs Margaret McNamee and sometimes by Mrs Margaret McNamee and also by the tutor for Mr John McNamee, to record that Mr John McNamee and Mrs Margaret McNamee resigned as directors and that the members had appointed Mr Miller, Bill and Stephen as directors of the relevant company. The circulating resolutions plainly contemplated that an appointment of those directors had taken place and it was the members who had made it, but it is common ground that there was no separate act of the members, at least by way of a members' meeting or a circulating resolution separately signed by members, which constituted that separate act of the members. There are also resignations of Mrs Margaret McNamee and Mr John McNamee (by his tutor), as a director. It is possible that in some cases the resignation of John McNamee was superfluous, because his position as director had already been vacated by a lack of capacity under the relevant company's constitution. There are also a series of share transfers, as to which there is no dispute between the parties. 5. With that background, Mr Scruby, who appears for McMardi, puts the claim for validity of the appointment of the directors on two bases. The first is in reliance on s 249A of the Corporations Act or alternatively on the concept of unanimous consent at general law. Mr Scruby points out s 249(2) of the Act provides that a company may pass a resolution without a general meeting being held if all of the members entitled to vote on the resolution sign a document containing a statement that they are in favour of the resolution set out in the document. Subsection 249A(7) provides that the section does not affect any rule of law relating to the assent of members not given at a general meeting. Mr Scruby submits that it therefore preserves the operation of the Duomatic principle, allowing an act to take place by the unanimous consent of a company's shareholders, although he also recognises that there is intermediate appellate court authority in Australia that the Duomatic principle only relates to procedural matters: Hawcroft v Jamieson [2017] NSWSC 1478 at [234]-[239]. Little turns on that proposition for the present circumstances, because it is plain that any difficulty here arises as to a procedural matter, where it relates not to the power to appoint directors to the companies, but to the manner in which they were appointed without a general meeting of members or a circulating resolution of the members. 6. It may be arguable that s 249A(2) of the Act applies here, although that involves a relatively liberal reading of the terms of the section, where there is no document that, in terms, contains a statement that the relevant members are in favour of the resolution. There is, I recognise, a plain indication by the terms of the Deed of Settlement and Release as a whole, and the documents exhibited to it, that each of Mr John McNamee (by his tutor) and Mrs Margaret McNamee were, in substance, in favour of the resolutions. The passage of those resolutions by members was at least assumed by the directors' circulating resolutions to which I referred above, and Mrs Margaret McNamee and Mr John McNamee (by his tutor) signed the Deed of Settlement and Release. It seems to me that, in any case, the general law concept of unanimous consent in respect of a procedural matter is applicable here, where Mr John McNamee (by his tutor) and Mrs Margaret McNamee consented, as a matter of substance, to the passage of the relevant resolutions by the members, so far as that was contemplated by the Deed of Settlement and Release and the documents attached to it. 7. If I were incorrect in that view, it seems to me that this is a plain case for the application of s 1322(4)(a) of the Act. That section provides that, on the application of an interested person, the Court may make an order declaring that any act purporting to have been done or any proceeding purported to have been taken, under the Act or in relation to a corporation is not invalid by reason of any contravention of a provision of the Act or a provision of a company's constitution. McMardi is an "interested person" by reason of its direct (and in one company, indirect) shareholdings in the companies. The term "contravention" there includes a failure to comply with a requirement of the Act, relevantly, here, any failure to comply with the requirement under s 249A for the passage of a circulating resolution of members containing a statement of the relevant resolution in respect of the appointment of new directors. 8. The Court may not make an order under that section unless it is satisfied that the matter is essentially of a procedural manner which is likely to be satisfied here, or alternatively that the person or persons concerned in the contravention or failure acted honestly, or it is just and equitable to make the relevant orders. That is also plainly the case here, where there is no suggestion that any party to the Deed of Settlement and Release, or their legal advisors, were doing anything other than implementing what all parties agreed by that document, although the step of passage of the members' resolutions appears to have been omitted in a relatively complex transaction. The Court must be satisfied that no substantial injustice had been or is likely to be caused to any person, but that is obvious where what was done here could readily have been done by taking the additional formal step of passing a members' resolution in each of the companies, involving the same persons who executed the Deed of Settlement and Release. Mr Scruby draws attention to the well-known authorities including Weinstock v Beck (2013) 251 CLR 396; (2013) 93 ACSR 231; [2013] HCA 14 where the High Court emphasised the remedial purpose of s 1322(4) of the Act. I am satisfied that, even if I were wrong as to unanimous consent, the orders sought could be made under s 1322(4) of the Act. 9. Where I have found that unanimous consent is available, and relief under s 1322(2)(a) of the Act is also available, it seems preferable that I make the order for relief in the wider form which is contemplated by paragraph 2 of McMardi's Interlocutory Process. Red Hill's Interlocutory Process would accordingly be dismissed. I understand that the parties may seek to be heard in respect of the question of costs and I will therefore reserve the question of costs. Orders 1. I therefore make the following orders: 1. Declare that Mr Brendan Miller, Mr Steven McNamee and Mr Bill McNamee were validly appointed as directors of each of the Second to Seventh Respondents in these proceedings, on 3 December 2019. (004) 2. Dismiss the Interlocutory Process dated 5 November 2021 filed by Red Hill MCN Pty Ltd. (003) 3. The costs of each Interlocutory Process be reserved. 4. Declare that, while the First Defendant (Red Hill MCN Pty Ltd) does not appoint a representative to the board of the Second Defendant (Lorebray Pty Ltd), no resolution of the board of directors of the Second Defendant is invalid only by reason of being passed at a meeting at which there was a quorum of two directors. 5. Declare that the resolutions passed by the board of directors of the Second Defendant, Lorebray Pty Ltd, at its meeting held on 13 May 2021 at 4:30 pm, are not invalid only by reason of not being passed at a meeting at which there was quorum of two directors. 6. The First Defendant, Red Hill MCN Pty Ltd, pay the costs of the Plaintiff, McMardi Pty Ltd, of and incidental to the Originating Process and the Amended Originating Process as agreed or as assessed. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 02 December 2021