New South Wales Supreme Court CITATION : Jones v Castle Hill RSL Club Ltd [2005] NSWSC 1310 HEARING DATE(S) : 25 October 2005 JUDGMENT DATE : 25 October 2005 JUDGMENT OF : Brereton J CATCHWORDS : EQUITY - remedies - interlocutory injunctions - approach where issue is question of law on uncontroversial facts - ASSOCIATIONS & CLUBS - rights, duties and liabilities of members - club contracts to maintain rights of one class of members in form no less than existed as at date of contract - whether right to stand for election to 2 of 12 board positions in competition with members of other category is a right in a lesser form than to stand for election for those positions in competition only with members of same category - ALTERNATIVE DISPUTE RESOLUTION - mediation - whether agreement to mediate disputes should be enforced where disputed issue is resolved on interlocutory application D'Arcy v Burelli Investments Pty Limited (1987) 8 NSWLR 317 CASES CITED : MCP Muswellbrook Pty Limited v Deutsche Bank Asia AG (1998) 12 NSWLR 16 David Arthur Jones, Clarence Gregory Smith and Barry William Newman (plaintiffs) PARTIES : Castle Hill RSL Club Limited (first defendant) The Returned & Services League of Australia (NSW Branch) (second defendant) FILE NUMBER(S) : SC 5589/05 G P McNally (plaintiffs) COUNSEL : D J Russell SC (first defendant) L Copley (solicitor) (second defendant) Matthews Dooley & Gibson (plaintiffs) SOLICITORS : Walls & Rodriguez (first defendant) PricewaterhouseCoopers Legal (second defendant) LOWER COURT JURISDICTION : IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION BRERETON J TUESDAY 25 OCTOBER 2005 5589/05 DAVID ARTHUR JONES & ORS v CASTLE HILL RSL CLUB LTD JUDGMENT (ex tempore – revised 19 December 2005) 1 HIS HONOUR: The plaintiffs are the trustees of the Castle Hill RSL sub-Branch, which is a chartered sub-Branch of the second defendant, the New South Wales State Branch of the Returned Services League. The first defendant is the Castle Hill RSL Club, a registered club which conducts its operations on land which was formerly owned by a company called Reltsac Pty Limited, of which the sub-Branch as to 55 percent, and the club as to 45 percent, were the shareholders. In order to facilitate the Club's ability to use the land as security, and otherwise to resolve difficulties arising from the shareholdings in Reltsac and the holding of the land through Reltsac, the sub-Branch (which is an unincorporated association under the ultimate control of the State Branch) on the one hand, and the Club on the other, in 2001 agreed that the trustees would transfer to the Club the sub-Branch's shareholding in Reltsac, in consideration of a payment of approximately $6 million and otherwise upon terms set out in an arrangement constituted by four deeds dated 28 May 2001. Pursuant to these arrangements, the agreed sum was paid by the Club to the State Branch and, in turn, by the State Branch to the trustees, and the sub-Branch's shares in Reltsac were transferred to the Club. So far as the evidence shows, at least with the exception of the matters the subject of the current dispute, all parties have otherwise performed and continued to perform their obligations under the four deeds; at least there is no suggestion otherwise in these proceedings. 2 One of the deeds of 28 May 2001 is entitled "Deed Recognising Club Remembrance Obligations", to which I shall refer for the sake of convenience as the Remembrance Obligations Deed. The parties to the Remembrance Obligations Deed are the State Branch, the then trustees of the sub-Branch, and the Club. The Remembrance Obligations Deed recites that the parties to it wish to enter into the Deed to recognise the Club's remembrance obligations for the benefit of the sub-Branch and its members. 3 By clause 3.1, the Club covenants that it will, during the "minimum remembrance period" (which is defined, in effect, to be a period of at least 15 years from the date of the Deed), perform the acts, matters and things specified in Schedule 1 to the Deed (called "the Club's Remembrance Obligations"), at its own cost and without any form of remuneration, reward or refund from any person. Clause 3.2 provides that the performance of the Club's Remembrance Obligations and the Deed may be enforced by the State Branch by proceedings in a court of competent jurisdiction, and that the parties agree and acknowledge that those obligations have special significance to the State Branch and the sub-Branch, and that only specific performance of those obligations would be an adequate remedy for breach of any one or more of the Remembrance Obligations or any other provision of the Deed. 4 The Club's Remembrance Obligations are specified in Schedule 1 to the Remembrance Obligations Deed, which provides that the Club must, relevantly: 8. Maintain in the Club's Constitution a clause stating that the objects of the Club are or include to promote or abide by the Objects of the League; … 11. While the sub-Branch retains its Charter, and unless otherwise agreed to by the sub-Branch pursuant to Part 11 of this Deed: (a) maintain the rights of members of the sub-Branch to become members of the Club and enjoy the benefits of the Club or participate in the affairs of the Club as they appear in clauses 16 to 20 and 22 to 108 of the Club's Constitution as at the date of this Deed without in any way limiting the ability of the Club to provide similar rights and privileges to its other members, (b) maintain the rights of members of the Club who are also members of the sub-Branch to vote in the affairs of the Club at any Annual General Meeting or General Meeting of members on any resolution, to stand for election to the Board of the Club and to receive or share in any other rights and privileges provided to the members of the Club in a form which is no less than as they appear in the Club's Constitution as at the date of this Deed. PROVIDED ALWAYS that if the Club extends to its members who are not members of the sub-Branch rights and/or privileges greater than or in addition to those rights and privileges afforded to members of the Club who are also members of the sub-Branch, the Club shall extend those rights and privileges to the members of the Club who are also members of the sub-Branch. 5 Clause 20 of the Remembrance Obligations Deed relevantly provides as follows: 20.1 Disputes to be First Mediated If a dispute arises between the parties out of this Deed, then the parties agree to attempt to endeavour to settle the dispute by mediation administered by the Australian Commercial Disputes Centre. A mediation shall be held in Sydney or in such other place as the parties may agree in writing. 20.2 Disputes to then be Arbitrated If the dispute has not been settled within thirty five (35) days (or such other period as agreed to in writing between the parties to the dispute) after the appointment of a mediator, the disputes shall be submitted to arbitration administered by and in accordance with the Arbitration Rules of the Australian Commercial Disputes Centre. 6 The Club has given Notice, dated 7 September 2005, of its Annual General Meeting to be held at 8pm on Tuesday 25 October 2002, that is to say this evening. The Notice of Meeting specifies that the business of the meeting includes "To consider and if thought fit, pass Special Resolutions, 1 - 3 set out in annexure A on page 10 of the Club's 2005 Annual Report". Other business generally typical of that which one might expect to be conducted at an Annual General Meeting of an RSL Club is also specified. 7 The terms of two of the proposed Special Resolutions are relevant to these proceedings. 8 Proposed Special Resolution 1 is as follows: 1. That Rule 14 of the Constitution of Castle Hill RSL Club Limited be deleted and the following Rule 14 be substituted in its place or stead:- 14 If upon the winding up or dissolution of the Club there remains after the satisfaction of all its debts and liabilities any property whatsoever the same must not be paid to or distributed among the members of the Club but must be given up or transferred to any sporting club or body carried on predominately for the encouragement of the game of sport and that is not carried on for the profit or gain of its individual members and whose members cannot personally benefit upon a winding up, and if and so far as effect cannot be given to the aforesaid provision then to some charitable object. 9 Rule 14 of the Constitution in its current form is as follows: If upon the winding up or dissolution of the Club there remains after the satisfaction of all its debts and liabilities any property whatsoever the same must not be paid to or distributed among the members of the Club but must be given up or transferred to the Castle Hill Sub-Branch of the R.S.L., and if and so far as effect cannot be given to the aforesaid provision, then to some charitable object. 10 Proposed Special Resolution 2 is in the following terms: 1. That Rule 50 of the Constitution of Castle Hill RSL Club Limited be deleted and the following Rule 50 be substituted in its place or stead:- 50(a) Ten (10) of the twelve (12) Directors that constitute the Board of Directors of the Club must be Category 1 members of the Club and only such Category 1 members are eligible to be nominated for, elected to and hold office in respect to ten of those twelve Board positions. (b) The remaining two (2) of the twelve (12) Directors that constitute the Board of Directors of the Club may be either Category 1 members or Category 2 members of the Club and only such Category 1 members or Category 2 members are eligible to be nominated for, elected to and hold office in respect to two of those twelve Board positions. (c) Only Category 1 members are eligible to be nominated for, elected to and to hold Executive office on the Board. For the avoidance of doubt Executive office shall mean any of the office of President, Vice President or Treasurer. 11 Rule 50 of the Constitution is currently in the following form: Only Category 1 members are eligible to be nominated for, elected to and hold office on the Board. 12 It is germane at this point to observe that the current Constitution of the Club recognises relevantly two categories of members: Category 1 members, being members of the Club who are also members of the sub-Branch; and category 2 members, being members of the Club who are not members of the sub-Branch. Generally speaking, category 1 members enjoy more extensive rights under the Constitution of the Club than category 2 members. 13 There have been a number of communications between the trustees of the sub-Branch and officers of the Club over the last several months on the topic of these two proposed Special Resolutions. As any question of delay, which had once been foreshadowed, is not pressed by the first defendant on this application, it is unnecessary to consider the history of those dealings at this point, save to note that a request has been made that the motions be withdrawn pending further negotiations, and that request has been declined. 14 Today, the trustees approached the Duty Judge with a summons, which joins the Club and the State Branch as defendants, and were granted leave to file it in Court, returnable instanter. Further service was dispensed with. By that summons, the trustees claim an injunction in the following terms: An order that the first defendant by itself, its servants or agents be restrained from putting, or allowing to be put, to the first defendant's members at the Annual General Meeting of the first defendant to be held on 25 October 2005 Special Resolutions 1 and 2 as set out in the first defendant's Notice of Ordinary and Special Resolutions, dated 12 September 2005 or any similar resolutions. 15 It is for an interlocutory injunction to that effect that the trustees move today. 16 On an application for such an interlocutory injunction, the question is whether there is a sufficiently arguable case for final relief to justify the grant of an interlocutory injunction having regard to the balance of convenience. I so state the question to recognise, first, that there is an inter-relationship between the strength of the question to be tried on the one hand and where the balance of convenience lies on the other, but also to recognise that it is always for the applicant for interlocutory relief to make out some serious question to be tried before one comes to consider the balance of convenience. 17 Despite this, on an application for an interlocutory injunction when there arises a pure question of law, or a question of law based on facts which at that time are not in contest, generally speaking a judge should endeavour to decide that question, and ordinarily it is in the interests of the parties that the Court do so [MCP Muswellbrook Pty Limited v Deutsche Bank Asia AG (1998) 12 NSWLR 16 (Powell J)]. As Young J said in D'Arcy v Burelli Investments Pty Limited (1987) 8 NSWLR 317: In an interlocutory application for an injunction where a question of law rises, the prevailing view is that that question of law should be decided, unless the judge considers there are good reasons for not doing so. Those good reasons will usually occur because there has been too little time to do research or the questions of law might be affected by the facts. 18 This is a case in which there is such a question, which I ought to resolve if I can. 19 The trustees' case is that the proposed Special Resolutions would be a breach of the obligations of the Club under the Remembrance Obligations Deed, and in particular under Schedule 1, clause 11 of that Deed. Although a somewhat different argument has been raised by the State Branch, the trustees do not suggest that the proposed Special Resolutions would be void on constitutional grounds. The injunction is sought, not on the basis of lack of constitutional power, but to enforce a contractual obligation. 20 It is not in doubt that a corporation may, by contract, bind itself not to amend its Constitution. Shareholders' agreements, outside the Articles of Association, are a typical example of this. Mr Russell of Senior Counsel, who appeared for the Club, did not suggest that the Club could not bind itself in this way. 21 I come then to consider, first, proposed Special Resolution 1. That resolution, if adopted, would amend Rule 14 of the current Constitution. Rule 14 is not one of the Rules of the Constitution specified in clause 11(a) of Schedule 1 of the Remembrance Obligations Deed. The question is whether it is caught by clause 11(b), which is concerned with the rights of members of the Club who are also members of the sub-Branch. It is concerned with rights to vote, to stand for election, and to receive or share in any other rights or privileges provided to the members of the Club. It seeks to preserve the rights in those respects of sub-Branch members who are also Club members, in a form no less than the form which they took under the Club's Constitution, as at the date of the Deed. In my opinion this clause is clearly concerned with the rights of members of the Club in their capacity as members of the Club (and not, for example, in their capacity as members of the Sub-Branch). In short, it is concerned with what might be called "membership rights". 22 Rule 14 as it is in the existing Constitution - and for that matter in its proposed amended version - is concerned with the destination of the surplus assets of the Club in the event of a winding up. In both its current and proposed amended form, it provides that any surplus must not be paid to or distributed among the members of the Club. The current form provides that the surplus must be transferred to the sub-Branch; the proposed amended form would provide that the surplus must be transferred to some sporting club. (The underlying purpose of the proposed amendment is apparently to assist the Club to gain a taxation exemption as a sporting club). 23 In my opinion, Rule 14 does not confer on members rights of the type contemplated by clause 11(b) of the first Schedule to the Remembrance Obligations Deed. To the contrary, it provides that property on winding up must not be paid to or distributed among members. This is not a provision of rights or privileges to the members of the Club. The proposed amendment would not detract in any way from any right or privilege which Category 1 (or any) members now enjoy. In my opinion, the proposed amendment to Rule 14 does not involve any contravention of the Remembrance Obligations Deed. 24 For the State Branch, Mr Copley has argued, however, that the proposed amendment of Rule 14 might be contrary to the Club's Constitution. As I understand his argument, it is that the Remembrance Obligations Deed, by Schedule 1, paragraph 8, requires the Club to maintain in its Constitution, a clause stating that the objects of the Club include "to promote and abide by the objects of the League". Such a clause appears in the current Constitution of the Club, as Rule 10(b), and there is no proposal to omit it, so there would be no direct contravention of paragraph 8 of the Schedule. However, puts Mr Copley, the presence of that object effectively incorporates into the Club's Constitution the objects of the League, which, so it is said, though none can particularly be pointed to as so providing, have the overall effect that its purpose is the remembrance and welfare of returned servicemen and women, and that the provision of assets to a sporting club would be wholly outside those objects. 25 In my opinion, paragraph 8 of the first Schedule and Rule 10(b) of the Club's Constitution do not have the effect of importing into the Club's Constitution the objects of the League, let alone limiting the Club's power or constraining its Constitution by those objects. Their true effect is that one of the objects of the Club must be to promote and abide by the objects of the League, but that is far removed from limiting the Club's functions to the promotion of the objects of the League, or constraining its powers according to those objects. Accordingly, I do not think Mr Copley's argument raises a serious question to be tried on this issue. 26 Moreover, as Mr Russell points out, if Mr Copley's argument were correct, it would result in invalidity on constitutional grounds of the proposed amendment of the Constitution, which could be resolved on a final hearing without the necessity for a grant of interlocutory relief in the meantime. It is not a contractually-based argument of the type which Mr McNally, for the trustees, has advanced. Adoption at the meeting of the resolution, if it were ultra vires, would not be irremediable and thus this basis for impugning the proposed resolution does not necessitate interlocutory injunctive relief, in contrast to the contractual basis advanced by the trustees. 27 Mr McNally has also argued that, even if I were to come to the view that the construction for which he contends was not to be preferred, nonetheless there is a bona fide dispute on this issue and, in order to preserve for the trustees the opportunity to mediate that dispute provided by clause 20 of the Deed, an injunction should be granted. 28 In my opinion, the better view of the mediation clause is that it provides a condition precedent to arbitration under clause 20.2. The Court might well decline to refer a dispute to arbitration in the absence of mediation under clause 20.1 having first taken place. The Court might even stay proceedings before it in respect of a dispute which attracted clause 20, unless and until the parties underwent mediation. But the right to mediate is not a substantive right. It is a procedural mechanism, designed to assist in the resolution of disputes. In my opinion, it would be inappropriate to use that clause as a basis for restraining the Club from putting the first proposed resolution to the meeting, in circumstances where I have concluded that the construction for which the trustees contend is not sufficiently arguable otherwise to justify that course. It would be an inappropriate use of the mediation clause to compel that course in respect of a dispute one side of which was not reasonably arguable. 29 I turn then to the second proposed resolution. Rule 50 in the Constitution, in its present form, has the effect that it is only members of the sub-Branch who are eligible to be nominated for, elected to and hold office on the Board. The proposed amendment would have the effect that while, of the twelve positions on the Board, sub-Branch (Category 1) members would remain exclusively eligible for ten, two positions would be available to be contested by Category 2 members as well as by Category 1 members. 30 Rule 50 in its current form confers on members of the sub-Branch the right to participate in the affairs of the Club by being the members of the Board to the exclusion of all others. That is a right which appears in Rule 50 of the Constitution, and is therefore one of the rules covered by paragraph 11(a) of the first Schedule to the Remembrance Obligations Deed. The right to stand for election to the Board in competition only with other Category 1 members, to the exclusion of members of other categories, is a superior right to one to stand for election to the Board in competition with members of both categories. 31 While clause 11(a) qualifies its protection by providing that it does not limit the ability of the Club to provide similar rights and privileges to members other than members of the sub-Branch, this does not, in my opinion, mean that it is open to the Club, by conferring on other members rights which were given exclusively to members of the sub-Branch, to dilute the rights of the Category 1 members to participate in the affairs of the Club by constituting all the members of the Board. 32 In construing clause 11(a), its primary object, in my opinion, is the maintenance of the rights of sub-Branch members as they appear in the existing Constitution, though permitting the extension of similar rights to others. Where the rights of sub-Branch members would not be diminished by such extension, then this permits such rights to be given to other members. But the object of maintaining the rights of sub-Branch members in the form in which they appear in the current Constitution, cannot be achieved in the case of Rule 50 if Category 2 members are permitted to stand for membership of the Board. 33 In short, the effect of clause 11(a) is that it only enables rights of Category 1 members under the current Constitution to be extended to others, if to do so would not have the effect of reducing the content of the rights of the Category 1 members. This construction obtains assistance from reading clause 11 as a whole: taken as a whole, the purpose of the clause appears to be to entrench the existing rights of the sub-Branch members, but at the same time to allow rights to be conferred on persons who are not sub-Branch members without prejudicing the position of sub-Branch members. 34 Even if my construction of clause 11(a) is not correct, the more specific clause 11(b) produces the same result. Clause 11(b) requires that the Club maintain the rights of sub-Branch members to stand for election "in a form which is no less than as they appear in the Club's Constitution as at the date of this Deed". A right to stand for election for two of the twelve Board positions in competition with members who are not sub-Branch members is, from the perspective of Category 1 members, a lesser right than one to stand for such election in competition only with Category 1 members. 35 Accordingly, in my opinion, on the proper construction of clause 11 of the First Schedule, the adoption of Proposed Special Resolution 2 would involve a breach of the Club's obligations under the Remembrance Obligations Deed. 36 No serious argument was advanced, and responsibly so, that were I to come to such a conclusion, the balance of convenience did not favour the grant of an injunction. If an injunction were not granted, then the Club could adopt the proposed resolution, which could not thereafter be quashed. That damages would not be a sufficient remedy, and that specific relief was appropriate, was acknowledged by the parties in clause 3.2 of the Remembrance Obligations Deed. The balance of convenience plainly favours a grant of an injunction in respect of Proposed Special Resolution 2. 37 Subject to any submissions as to form, I propose to make the following orders: 1. Upon the plaintiffs by their counsel giving to the Court the usual undertaking as to damages, order that until further order, the first defendant be restrained from by itself, its servants and agents, putting or allowing to be put to its members at the Annual General Meeting of the first defendant to be held on 25 October 2005, Special Resolution 2 as set out in the Notice of Ordinary and Special Resolutions dated 12 September 2005, or any resolution to substantially the same effect. 2. Order that costs of the application be plaintiffs' costs in the proceedings. 3. Adjourn the summons to 22 November 2005 at 9.30am before the Registrar. 38 There being no submissions as to their form, I make those orders. ********** 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.