(2001) 29 ACSR 519 Reported Decision : [2001] NSWSC 915 [2001] ACL Rep 120 NSW 133 (2002) 20 ACLC 396 New South Wales Supreme Court CITATION : Hopkins v Foyster [2001] NSWSC 915 CURRENT JURISDICTION: Equity FILE NUMBER(S) : SC 5047/01 HEARING DATE(S) : 12/10/01 JUDGMENT DATE : 12 October 2001 PARTIES : Hopkins Professional Services Pty Limited & 3 Ors - Plaintiffs Foyster Holdings Pty Limited & 14 Ors - Defendants JUDGMENT OF : Barrett J COUNSEL : Mr J.B. Simpkins SC - Plaintiffs Ex parte SOLICITORS : Thompson Eslick - Plaintiffs CATCHWORDS : CORPORATIONS - meeting of members - several objects of meeting confided by constitution and replaceable rules to board of directors - casting of shareholders' votes in favour of certain resolutions arguably in breach of contract - not appropriate in this case to await outcome of meeting - orders restraining voting granted LEGISLATION CITED : Corporations Act Automatic Self-Cleansing Filter Syndicate Company Limited v Cunninghame [1906] 2 Ch 34 Gramophone & Typewriter Limited vStanley [1908] 2 KB 89 Turner v Berner [1978] 1 NSWLR 66 CASES CITED : NRMA Limited v Parker (1986) 6 NSWLR 517 Uniting Church of Australia Property Trust (NSW) v Macquarie Radio Network Pty Ltd (1997) 24 ACSR 721 Second Consolidated Trust Limited v Ceylon Amalgamated Tea & Rubber Estates Ltd [1943] 2 All ER 567 Carr Boyd Minerals Ltd v Ashton Mining Ltd (1989) 15 ACLR 599 Re Medefield Pty Ltd (1977) 2 ACLR 406 DECISION : Ex parte orders granted. 8 THE SUPREME COURT REVISED OF NEW SOUTH WALES EQUITY DIVISION BARRETT J FRIDAY 12 OCTOBER 2001 5047/01 - HOPKINS PROFESSIONAL SERVICE PTY LTD & ORS v FOYSTER HOLDINGS PTY LTD JUDGMENT HIS HONOUR: 1 The plaintiffs, of whom there are four, are shareholders in the third defendant, Tasmanian Titanium Pty Ltd, to which I shall refer as "the Company". The first and second defendants are also shareholders and may, for convenience, be referred to as the "Foyster interests". The 4th to 14th defendants are the remaining shareholders. The Foyster interests account for some 69 per cent of the shares in the Company. The plaintiffs have something between 10 per cent and 15 per cent, and the 4th to 14th defendants hold the balance. 2 The plaintiffs seek, on an urgent basis, ex parte orders restraining the Foyster interests from voting in favour of all but one of six resolutions set out in a notice dated 18 September 2001, by which Mr David Lloyd Foyster has purported, on behalf of the first defendant, as the holder of at least 5 per cent of the voting rights, to convene a general meeting of the Company to be held in Sydney at 10 o'clock tomorrow morning. No issue is taken with Mr Foyster's power to act in that respect. 3 The resolutions set out in the notice convening the meeting are, first, that Peter William Hopkins be removed as a director; second, that Mr Hopkins be removed as secretary; third, that Glenn Raymond Lovell be appointed as a director; fourth, that Mr Lovell be appointed as secretary; fifth, that Mr Lovell be appointed as the non-executive chairman of the board of directors; and, sixth, that the registered office of the Company be removed to a new location. The one resolution in respect of which the plaintiffs do not seek to have the Foyster interests restrained from voting is the resolution for the appointment of Mr Lovell as a director of the Company. 4 The first objection taken in relation to the second, fourth, fifth and sixth items in the notice of meeting and to voting on them by the Foyster interests is that each of those items is within the exclusive province of the board of directors, so that a general meeting of the Company cannot make the contemplated decision in such a way as to make it a valid act of the Company. The principle to this effect is of long standing, dating from cases such as Automatic Self Cleansing Filter Syndicate Company Limited v Cunninghame [1906] 2 Ch 34 and Gramophone & Typewriter Limited v Stanley [1908] 2 KB 89 decided before the First World War and, in this State and more recently, Turner v Berner [1978] 1 NSWLR 66 and NRMA Limited v Parker (1986) 6 NSWLR 517. The principle derives in every case from a construction of the particular company's constitution or, under the system as it now exists, a construction of a combination of the constitution and those of the replaceable rules in the Corporations Act which apply to the particular company. 5 In this case I was taken by Mr Simpkins SC to the relevant replaceable rules and other provisions in the Corporations Act and to the constitution, from which it became clear that, in all relevant areas, the replaceable rules apply, unaffected by the constitution, the Company having been registered on 13 August 1999 (see s.135(1)(a)(i)). The provisions affecting or relevant to the several matters in the notice of meeting are s.204D of the Corporations Act which is a provision of general application vesting in directors the power to appoint a secretary; s.248E, an applicable replaceable rule empowering the directors to elect a director to chair their meetings; s.201G, an applicable replaceable rule enabling the company in general meeting to appoint a director; s.203C, an applicable replaceable rule allowing a director of a proprietary company to be removed from office by a resolution of members and also allowing a replacement to be appointed in the same way; s.198A, an applicable replaceable rule which vests the management generally in the directors and is thus the source of a power on their part to select the location of the registered office; and s.33(4) of the Acts Interpretation Act 1901 which makes the power to remove a secretary exercisable by the authority which has the power to appoint a secretary. Of all these, the only powers exercisable by the company in general meeting rather than the directors are those concerning appointment and removal of directors. 6 The principles emerging from the line of authority to which I have referred therefore apply and it is, in a real sense, futile for the meeting of shareholders scheduled to be held tomorrow to attempt or purport to deal with the second, fourth, fifth and sixth items in the notice of meeting. 7 The objection concerning the first item in the notice of meeting, that is the proposed resolution to remove Mr Hopkins as a director, has a different basis, given the plaintiffs' concession that, under the replaceable rule in that behalf in the Corporations Act, the power to remove a director is placed in the hands of the general meeting. This means that the meeting will be competent, in company law terms and as a matter of constitutional authority, to effect the removal of Mr Hopkins as a director by the requisite majority of votes. 8 The objection in relation to the removal of Mr Hopkins arises from contract. I was taken to two documents or sets of documents said to constitute or evidence agreements among the shareholders in the Company. The first is a formally drafted shareholders agreement which, on its face, appears to have been made on 29 September 1999, that being shortly after the Company was incorporated. The description of the parties is, however, curious. The party of the first part is Foyster Holdings Pty Ltd (that is, the first defendant) and the party of the third part is the Company itself, Tasmanian Titanium Pty Ltd. The party of the second part is described as, "Each other person who becomes a shareholder of the Company". 9 There is some evidence (and I should say here that all the material to which I have so far referred appears from the affidavit of Mr Hopkins which was read on the application, he being currently the chairman and Company secretary) which tends to show that parties other than those of the first and third part named in the document have adhered to or acceded to this shareholders' agreement and it is at least cogently arguable that that agreement is in place and in force among either all the shareholders or at least a large number of them. 10 In addition, there is a series of documents dating from March of this year which evidences a form of arrangement to supplement or change the shareholders' agreement, although I am reluctant to be too firm when I say "change", as one of the provisions of the new arrangement seems to contemplate that the original agreement is preserved. At all events, the new arrangement seems to be constituted by a memorandum signed by Mr David Lloyd Foyster, on behalf of Foyster Holdings Pty Ltd, and Mr Hopkins, on behalf of the Company, coupled with a number of resolutions of the boards of directors of key parties. This evidence is sufficient to make me think that it is again at least cogently arguable that a new contractual arrangement came into being among the several shareholders or at least a number of them. 11 The two alleged agreements deal with the composition of the board of directors of the Company. I do not intend here and now to go into the detail of the relevant provisions. It is sufficient to say that the effect of those provisions, if they are indeed binding, is such as to raise a strong argument that the removal of Mr Hopkins as a director would amount to a departure from a contractually agreed basis for the conduct of the company's affairs. The arrangement with respect to the composition of the board contemplates that there will be a certain number of so called "independent directors", of whom Mr Hopkins is one, given that, according to the documents, "independent" effectively means unaligned with the Foyster interests. 12 I am satisfied that there is a serious question to be tried as to whether the contractual rights of the plaintiffs will be infringed if the resolution in the first item in the notice of meeting is passed. That is sufficient to justify interim relief subject only to the balance of convenience and any factor which equity would see as disentitling. 13 The remaining resolutions, with the exception of the one for the election of Mr Lovell as a director with which no objection is taken, are, in a real sense, an exercise in futility as already noted. I have weighed up in my mind whether it is appropriate to grant relief in relation to them or not, since if they be passed and even if they be passed by a substantial majority, they will not achieve anything. In the end, I have been taken to provisions of the supposed contracts which would suggest that if the steps contemplated by the other resolutions were taken, that too would arguably be a breach of contract, with the result, I think, that it is appropriate that, notwithstanding what appears to be futility, an order should be made in respect of those resolutions as well, subject once again to the balance of convenience and any disentitling factor. Some consequence might be thought to follow from the expression of will reflected by the voting, even if a majority of votes in favour does not produce a legally effective outcome in terms of corporate action. 14 Turning to the balance of convenience, the Court is normally reluctant to interfere in advance with proceedings of company meetings on the footing that it is never really possible to say, with any certainty, how a particular meeting will turn out. The purpose of a meeting is for the shareholders to come together, to consult, to debate and to try to impress competing points of view upon one another so that an informed decision can thereby be made. Generally speaking, it is not possible or feasible to try to guess what the outcome will be, the appropriate course being to let the meeting proceed, let the votes be cast and then, when the dust has settled, see whether some wrong has been done which is in need of redress. The relevant principle is succinctly stated by Young J (as he then was) in Uniting Church of Australia Property Trust (NSW) v Macquarie Radio Network Pty Ltd (1997) 24 ACSR 721. 15 This case is different. In evidence is a list of the proxies which have been given, from which it appears that the vast majority of the shareholders, other than the Foyster interests, are opposed to the resolutions that the Foyster interests are promoting. When I say they appear to be opposed, I really mean that those shareholders have lodged proxies in which is included a direction by the giver of the proxy to vote against the relevant resolution. It cannot be assumed as any form of foregone conclusion that those expressions of intention will necessarily be translated into votes cast. 16 It is true that a person appointed as proxy by an instrument containing a direction as to the manner of voting may come under a positive legal duty to vote that way: see s.250A of the Companies Act and Second Consolidated Trust Limited v Ceylon Amalgamated Tea & Rubber Estates Ltd [1943] 2 All ER 567; see also the suggestion by the Companies and Securities Law Review Committee in its discussion paper of September 1999 "Shareholder Participation in the Modern Listed Public Company" that a director appointed as proxy and directed how to vote may possibly be under a fiduciary duty to obey the direction. But even allowing for the expectation that voting directions will be followed, a shareholder who has given a directed proxy may, of course, attend the meeting in person and thereby suspending the proxy's authority to speak and vote: Corporations Act, s.249Y(3). In the case of a shareholder which is a body corporate, a representative appointed under s.250D will, if present, suspend a proxy's authority in the same way. And a proxy is, of its very nature, always subject to revocation. It is never possible to look at a series of voting instructions given in proxy forms and to extrapolate from that the inevitable outcome at the meeting. 17 More important in this case is the reality that the Foyster interests' position must be taken to be clear. They, after all, are the proponents of the resolutions and, through s.249F, the creators of the forum. The proxies they have given, although attended in theory by the lack of certainty to which I have just referred, are directed in favour of the resolution. This combination of circumstances plus the reality that they account for something like 70 per cent of the votes, means that the Court should approach the matter on the assumption that the resolutions will be passed unless some order is made to prevent their being passed. 18 As I said, the balance of convenience would normally be in favour of allowing the meeting to go ahead and then examining the result. But the facts to which I have just referred require that approach to be modified here. Additionally and importantly, we are dealing here with what are arguably breaches of contract and there is a real case for saying that the contractual position should be preserved in its existing state rather than allowing the meeting to go ahead and produce what is arguably a departure from the contract. It is this contractual feature that sets this case apart from those to which I have referred, in which the appropriate course is to let the meeting take its course and deal with the results afterwards. Mr Simpkins has drawn my attention to the decision of the Full Court of the Supreme Court of Western Australia in Carr Boyd Minerals Ltd v Ashton Mining Ltd (1989) 15 ACLR 599 and that of Needham J in Re Medefield Pty Ltd (1977) 2 ACLR 406 which discuss the balance of convenience in cases of this kind. The former case in particular supports the view that the existence of what appears to be a contractual right to have the board constituted in a particular way is a powerful consideration in favour of seeing the status quo maintained and, therefore, the exercise of the voting rights restrained so that it is maintained. 19 As I have said, the meeting is to be held tomorrow morning. The application which came before me this afternoon might therefore be thought to be attended by delay. There is in evidence, however, correspondence which shows that attempts were made up to the last minute to find an agreed solution. The plaintiffs cannot be accused of disentitling delay. 20 Against this background, I will make orders in terms of the form of order which has been handed up with two amendments: in order 1 I will substitute "6pm" for "5pm"; I will modify the form of order 3 so that the matter is stood over to 16 October 2001 before me. I now initial and date this amended form of order for identification. 21 Upon the plaintiffs, by their counsel, giving to the Court the usual undertaking as to damages, as they now do, I make an order in terms of order 4 in the form of order. The remaining orders are made subject to the modifications I have stated. I direct that these orders may be taken out forthwith and, to the extent that I have not already done so, I give leave to the plaintiffs nunc pro tunc to file in Court the summons and the affidavit of Mr Hopkins on which they moved. ********* Last Modified: 10/22/2001 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.