New South Wales Supreme Court CITATION : North Sydney District Rugby League Football Club Limited & 1 Ors v David Hill & 3 Ors [2000] NSWSC 249 CURRENT JURISDICTION: Equity FILE NUMBER(S) : SC 1857/00 HEARING DATE(S) : 28/03/00, 29/03/00 JUDGMENT DATE : 29 March 2000 North Sydney District Rugby League Football Club Limited (subject to Deed of Company Arrangement) ACN 003 009 158 (First Plaintiff) Max Christopher Donnelly (as Administrator of the Deed of Company Arrangement of the First Plaintiff) (Second Plaintiff) PARTIES : David Hill (First Defendant) Sam Sorrenti (Second Defendant) Willis Anthony Salier (Third Defendant) Peter Derwent (Fourth Defendant) JUDGMENT OF : Santow J COUNSEL : P M Wood (Plaintiffs) L J W Aitken (First, Second, Fourth Defendants) Henry Davis York (Plaintiffs) SOLICITORS : McCrohon Bergseng (First, Second, Fourth Defendant) Pigott Stinson Ratner Thom (Third Defendant) CATCHWORDS : CORPORATIONS — Deed of Company Arrangement does not preclude election of board by members — Construction of regulations of constitution of Club re eligibility for election of Board. DECISION : Declarations made that various directors entitled to stand for office. REVISED — 30 March, 2000 IN THE SUPREME COURT OF NEW SOUTH WALES IN EQUITY SANTOW J No. 1857/00 NORTH SYDNEY DISTRICT RUGBY LEAGUE FOOTBALL CLUB LIMITED (subject to Deed of Company Arrangement) ACN 003 009 158 First Plaintiff MAX CHRISTOPHER DONNELLY (as Administrator of the Deed of Company Arrangement of the First Plaintiff) Second Plaintiff DAVID HILL First Defendant SAM SORRENTI Second Defendant WILLIS ANTHONY SALIER Third Defendant PETER DERWENT Fourth Defendant JUDGMENT — ex tempore 29 March 2000 1 North Sydney District Rugby League Football Club Limited (subject to Deed of Company Arrangement) ("Norths") joined by Mr Donnelly as its Deed Administrator seeks certain declaratory relief. It is properly sought by a Summons inter partes rather than an application for directions. That relief pertains principally to the meeting of members convened by Mr Donnelly for 30 March 2000 and in particular to the eligibility of the various Defendants for election as a director. 2 The group of candidates for Board appointment are to be represented by the Second Defendant pursuant to the representative orders I am making. Issues may arise in the future as to potential conflict between the manifesto of that group (PX4, p104) and the requirements of the Deed. Whether that conflict in fact eventuates depends upon whether what has been informally indicated by their Counsel is fulfilled, namely that there is now recognition by that group of the primacy of the obligations under the Deed. However, the Administrator has adequate powers under the Deed using the power of removal and replacement of directors under clause 8.2.2 to deal with that problem should it arise; see also clause 8.3. 3 It is agreed that the representative orders should be made here. Though there is dispute concerning eligibility of the Second and Third Defendants for candidature to the board as well as those they represent, as also the Fourth Defendant's eligibility, that issue is resolved (save for Mr David Hill) in favour of eligibility if, as was not seriously contested, the word "in" in Regulation 36(b) of Norths' Articles of Association means "in respect of" the relevant year. There is some confusion in Norths' practice, but not its constitution about whether the relevant year is the financial year from 1 November to 31 October or 1 July to 30 June; the former is clearly what Norths' constitution requires and that must prevail. Essentially this means that provided, as is not in contest, the relevant subscription was paid in relation to the relevant year being, it is common ground, the financial year, from 1 November to 31 October, there is no necessity for that subscription to have been paid within the relevant year. It thus follows that, subject to the effect of the Deed, each of the persons referred to in para 1.2 of the Plaintiff's Summons is eligible to stand for election, putting to one side the First Defendant Mr David Hill. 4 The issues between the parties concern primarily the eligibility of the First Defendant, Mr David Hill, to stand for election as a director of Norths. An anterior question is however the effect of the Deed on his eligibility and that of any other candidate. In para 2 of the Plaintiff's Summons, declarations are sought in the following terms. These set out three alternative possibilities. "Declarations whether by reason of section 444G of the Corporations Law or otherwise the powers conferred on the Second Plaintiff by clause 8 (and in particular clause 8.2.3) of the Deed of Company Arrangement between the First Plaintiff and the Second Plaintiff dated 25 October 1999 ("the Deed of Company Arrangement"): 2.1 supersede and abrogate entirely the powers of the members of the First Plaintiff under the constitution of the First Plaintiff or otherwise to elect or appoint directors of the First Plaintiff ("the Members Powers") during the currency of the Deed of Company Arrangement, 2.2 exist in conjunction with the Members Powers and if exercised take precedence to and override the exercise of the Members Powers during the currency of the Deed of Company Arrangement, 2.3 are subordinate to the Members Powers and incapable of exercise in a manner which would conflict with or override the exercise of the Members Powers during the currency of the deed of Company Arrangement." 5 I should add in relation to para 2.2 that the word "to the extent there provided" can be taken to be included at the end. 6 It was not seriously pressed by anyone that alternative 2.3 applied. The contest is between the first two alternatives. In my view the correct position is as set out in para 2.2 above with the necessary qualification of the words "to the extent there provided". This is to make clear that the Deed is the source of the precedence there acknowledged. 7 While in theory it might have been possible for the Deed in its terms totally to supersede and abrogate the power of members to elect a board, I am satisfied the Deed does not purport to do so. The structure of clause 8 is to confer a power of appointment and removal of directors upon the Administrator which he may choose to exercise or not; see clauses 8.2.2 and 8.2.3. 8 No doubt the Administrator would exercise those powers and any others having regard to the overriding objectives of the arrangement set out in clause 2 of the Deed, pertaining to the joint arrangements with the Manly Club. Thus if a director were likely to frustrate those objectives it could be expected that the Administrator would exercise his powers accordingly. 9 However, clause 8.3 clearly recognises that Norths' directors have a continuing role in providing, "such assistance to the Administrator in the exercise and performance of his functions and powers as may reasonably be requested to achieve the objectives of the arrangement set out in this Deed." 10 It would be unnecessary for such an obligation to be imposed if the only directors in contemplation are those appointed by the Administrator. It should not be assumed that, like Thomas A Beckett, they would act contrarily to their Appointor's objectives as set forth in the Deed or to his consequential directions (assuming them to be lawful). The co-operation mandated by clause 8.3 can be taken for granted. Because it would need no express statement in relation to the Administrator's appointees of the kind found in clause 8.3, that clause clearly is designed to cater for ordinary elected directors. 11 Thus clause 8.3 presupposes such elections by the members pursuant to the convening of meetings now carried out by the Administrator in lieu of the board; see clause 8.2.1. Indeed that convening is precisely what this Administrator has done in relation to the meeting of members for 30 March 2000. 12 Accordingly, I am satisfied that the Deed properly construed has the effect set out in para 2.2 of the Summons earlier quoted. 13 Turning now to Mr Hill's eligibility for election, the facts concerning his position are broadly agreed and are conveniently set out in a letter from the Administrator's solicitors dated 17 March 2000 (PX4, p138). "1. That he was listed as a financial member of Norths as at 18 October 1996 for the period up to 30 June 1997; 2. That he was listed as a financial member of Norths as at 13 August 1997, 3 December 1997 and 19 February 1998. In that year, his membership was renewed on 30 July 1997. He is listed as having originally joined Norths as a member on 6 November 1989. The records do not indicate a receipt number for Mr Hill's subscription for that year; 3. That he was not listed as a financial member of Norths at 14 December 1998 and 26 February 1999 for the period up to 30 June 1999; 4. That he is listed as a member of Norths as at 14 October 1999 for the period up to 30 June 2000, having rejoined the company on 29 June 1999; 5. That Mr Hill made enquiries of Norths on 16 June 1999 regarding his membership status and was informed that he was no longer a member of Norths. Mr Hill requested that an application form as well as renewal letter be sent to him; 6. That, on 18 June 1999, Mr Hill applied to become a member of Norths and was proposed as a member by Peter Clancy (membership no. 553) which was seconded by Malcolm Woodcock (membership no. 439); and 7. That Mr Hill was approved for membership with a large number of proposed members at a board meeting of Norths held on Tuesday, 29 June 1999. The only relevant year Mr Hill is not listed as a member of Norths is in the year to 30 June 1999." 14 Regulation 36(b)(ii) is in the following terms: "(ii) Ordinary Members admitted to membership pursuant to the provisions of these Regulations who have paid or are deemed to have paid the subscription in the year in which the meeting is held and who have paid or are deemed to have paid such subscriptions in each or the two preceding years." 15 It needs to be read with Regulation 14(b) quoted below. "14. A Member shall cease to be a Member:- ….. (b) If he fails to pay to the Company the annual subscription provided for in these Regulations within one (1) month after the last day on which it was due; or ….." 16 It can be seen that no issue arises that Mr Hill was not a financial member of the Club on 30 July 1997 and 30 July 1998. He clearly was. The relevant financial year can be taken to be from 1 November to 31 October such that the reference to "the two preceding years" in Regulation 36(b)(ii) is taken to refer to those years (despite the Club's practice of using a 30 June year). Therefore, no issue arises as to his not having paid subscriptions in those two preceding years; clearly he has as required by the Regulation. That follows once the above facts are accepted and the word "in" is taken to mean "in relation to". The word "in" is capable of a variety of meanings. Absurdity would result if payment of a subscription had to be made only in a temporal sense within the year. The Club could never get payment in advance or indeed in retrospect, though the latter has particular complications to which I will later return. 17 The real difficulty with Mr Hill's eligibility relates to whether he can be said to have "paid or ….. deemed to have paid the subscription in the year in which the meeting is held" with "in" understood as meaning "in relation to". 18 Undoubtedly there was a period in June of last year where Mr Hill was in arrears to the point when he let his membership temporarily lapse, as it did automatically by force of Regulation 14(b). He attempted to remedy this by rejoining on 29 June 1999 paying a joining fee of $10 and membership fee of $15. He did so rejoin. The payment of $15 could, in accordance with the Club's practice, be taken to be payment for the year ahead (intendedly a June year but under the constitution a November year). It was however certainly not a payment in respect of the past arrears. 19 However, the past arrears are purportedly the subject of payment tendered to-day of a further $15. It is true Mr Hill's Counsel contends that the earlier payment was in respect of the past arrears. While I do not accept that submission, it does not matter. The combination of the two payments must suffice to cover both arrears and the financial year ahead. 20 The real question is whether all of that avoids Mr Hill being ineligible to stand as a director. In my opinion it does, I am satisfied he is eligible to stand as a director and in particular is not disentitled by the past lapse in his membership. That interpretation depends on the meaning of "paying a subscription". If it meant only payment in time and so as to avoid any lapsing of membership then that would be fatal for Mr Hill's eligibility. But I do not consider this informally-run club was intended to operate with such stringency. Thus I do not consider that the relevant Regulation against that background should be so construed, when the words admit of another meaning which avoids an unreasonable result. 21 I am satisfied that there was once an obligation on Mr Hill to pay the subscription and that Mr Hill is currently an Ordinary Member. Accordingly he satisfies the requirements of the Regulations provided all past subscriptions have now been paid including any arrears as indeed they have. That interpretation does not depend on his being under a continuing obligation to pay such arrears. Thus I do not need to determine whether he was subject to some continuing obligation to pay past arrears. That might be by way of unjust enrichment by reason of Mr Hill's continued use of Club facilities while he was technically not a member, if such occurred. It suffices that he once was under that obligation, and was at the time it first arose already a member. Clearly such a subscription is not a voluntary subvention at the time the obligation arose. 22 The interpretation which I have adopted does not open the door to potential takeover by a group of new members who purport to pay for a current membership and then purport to pay a subscription for two preceding years when they were never members. That concern, it is common ground, was part of the factual matrix surrounding drafting of the Regulations. This is because they are not in truth paying a subscription for the past years as they were never obliged to pay such a subscription. 23 Finally, while the Administrator through Counsel properly advanced the arguments which if accepted would contradict the position which I have concluded applies, it has been made clear that the Administrator takes a neutral position in terms of pressing those arguments beyond the stage of putting them. 24 Accordingly I conclude that the First Defendant is not ineligible to stand for election as a director of Norths at the annual general meeting convened for 30 March 2000 (or held at any adjourned date) in the events that have happened concerning the payment of his membership subscriptions and his temporary cessation as a member. ORDERS 25 I make orders and declarations in terms of the attached. ********** Last Modified: 09/25/2000 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.