Supreme Court New South Wales Medium Neutral Citation: In the matter of Statewide Office Furniture Pty Ltd [2015] NSWSC 142 Hearing dates: 18 February 2015 Decision date: 18 February 2015 Jurisdiction: Equity Division - Corporations List Before: Black J Decision: Order made declaring members' resolutions invalid due to inquorate meeting. Order made under s 249G for meeting of members with a quorum less than that prescribed by the articles of association. Catchwords: CORPORATIONS – management and administration – meetings – orders sought for s 1322 declaration that resolutions were valid notwithstanding procedural irregularity – where meeting of members conducted with lack of quorum – whether an order under s 249G required to convene a meeting of members because of impracticability. Legislation Cited: - Companies Act 1961 (NSW) s 137 - Companies Code 1981 s 539 - Corporations Act 2001 (Cth) ss 249F, 249G, 1322(1), 1322(2), 1322(4), 1322(6) - Supreme Court Act 1970 (NSW) s 66 Cases Cited: - Amlaki FZ LLC v Pinnacle Network (Australia) Pty Ltd [2008] FCA 1491 - Boaz v Hyde [2014] NSWSC 1591 - Beck v Tuckey Pty Ltd (2004) 49 ACSR 555 - Central Exchange Ltd v Rivkin Financial Services Ltd (2004) 51 ACSR 441 - Chalet Nominees (1999) Pty Ltd v Murray [2012] WASC 147 - Nenna v Australian Securities & Investments Commission [2011] FCA 1193; (2011) 284 ALR 386 - PW Saddington & Sons Pty Ltd (1990) 19 NSWLR 674 - Re DUET Management Co 1 Ltd [2013] NSWSC 817; (2013) 95 ACSR 34 - Whitehouse v Capital Radio Network Pty Ltd [2004] TASSC 12; (2004) 48 ACSR 569 Category: Procedural and other rulings Parties: Simon Stojic (Plaintiff) Statewide Office Furniture Pty Ltd (First Defendant) Anton Stojic (Second Defendant) Ivan Stojic (Third Defendant) Josip Bezina (Fourth Defendant) Representation: Counsel: S A Goodman (Plaintiff) J B King (Second Defendant) J T Johnson (Fourth Defendant) Solicitors: Blackstone Waterhouse (Plaintiff) Gregory Falk & Associates (Second Defendant) Lexes Legal (Fourth Defendant) File Number(s): 2013/127759 Judgment 1. By Amended Interlocutory Process filed on 13 January 2015, Mr Simon Stojic, the Plaintiff, seeks, first, a declaration that five resolutions ("Resolutions") passed at a general meeting of Statewide Office Furniture Pty Ltd ("Company") held on 15 December 2014 were valid. Alternatively, Mr Stojic seeks an order under s 1322(4) of the Corporations Act 2001 (Cth) that the resolutions are not invalid by reason of any noncompliance with s 137 of the Companies Act 1961 (NSW) or articles 39-40 of the Company's articles of association or alternatively by reason of a lack of quorum at the relevant meeting. As a further alternative, Mr Stojic seeks an order that the Court convene a meeting of shareholders of the Company and a direction that the presence of one member entitled to vote at that meeting is sufficient to constitute a quorum. Finally, Mr Stojic seeks the discharge of certain orders made by Lindsay J on 16 June 2014 and the discharge of an order made by, and the release of undertakings given to, Bergin CJ in Eq on 7 July 2014. 2. There was no dispute between the parties as to the underlying facts surrounding the meeting, although there is substantial dispute as to anterior facts in respect of the affairs of the Company, and dealings between family members, including the late Ivan Stojic, in respect of various wills prepared by Mr Stojic. In particular, there has been a substantial dispute as to the state of shareholdings in the Company and, on 18 November 2014, I made orders by consent that declared void the issue of certain shares in the Company to Mr Anton Stojic and to Mr Josip Bezina. The effect of that declaration was that, in substance, Mr Simon Stojic held at least 80% of the voting shares in the Company, and depending on other issues that were referred to, but not addressed, in this application, Mr Josip Bezina holds the remaining 20% of voting shares in the Company. 3. After those orders were made, Mr Simon Stojic gave notice, on 20 November 2014, of a general meeting of the Company to be held on 15 December 2014. Mr Stojic sought to pass resolutions at that meeting to amend the Company's articles of association and to appoint Mr Simon Stojic and another person, Mr Robertson, as directors of the Company with immediate effect and to remove Mr Anton Stojic and Mr Bezina as directors also with immediate effect. A difficulty existed with the form of the resolutions of which notice was given since, on 16 June 2014, Lindsay J had made an order by consent of several parties, on Mr Simon Stojic's application, that restrained the Company, Mr Anton Stojic and Mr Bezina from appointing any additional director of the Company. On the face of it, that order could have been contravened both by the Company, and by Mr Bezina, had steps been taken by the Company to appoint additional directors, or had Mr Bezina participated in that process, as the notice of meeting contemplated. 4. On 12 December 2014, albeit only immediately before the proposed meeting, Mr Bezina's solicitors wrote to Mr Simon Stojic's solicitors, raising concerns as to whether the notice of the meeting complied with s 137 of the Companies Act 1961 and articles 39 and 40 of the Company's articles of association. That issue is not pressed today, and it appears, as I will note below, that Mr Stojic had the ability to convene the relevant meeting under s 249F of the Corporations Act. More significantly, however, Mr Bezina's solicitors also raised the issue that the passage of the resolutions would, they contended, breach the orders made by Lindsay J. They also indicated that the quorum for the relevant meeting would require attendance by both Mr Simon Stojic and Mr Bezina and that Mr Bezina would not attend that meeting, and contended that the meeting would therefore lack a quorum and would lapse under the Company's articles of association. Mr Simon Stojic points out, in submissions, that that position had been taken only immediately before the meeting, and that is plainly correct. Nonetheless, the matters to which Mr Bezina's solicitors pointed were not matters that were wholly of Mr Bezina's creation. They were, at least in part, the product of orders which had been made by the Court some time before, and of the form of the resolutions which had been notified by Mr Simon Stojic as the resolutions which he sought to have passed at the relevant meeting. 5. Mr Simon Stojic's solicitors responded to that letter on the same day that whether the resolutions that were passed would conflict with the orders made by Lindsay J would depend on their wording, and raised the possibility that the resolutions would be passed in a different form at the relevant meeting, but did not offer the alternative form of those resolutions. It is, of course, entirely conceivable that, given the lateness with which Mr Bezina had raised the issue, no alternative form was offered because an alternative form had yet to be formulated. 6. The meeting proceeded on 15 December 2014 and was not attended by Mr Bezina. Resolutions were purportedly passed in an amended form, by Mr Stojic voting as a single member of the Company, appointing Mr Simon Stojic and Mr Robertson as directors from the date on which the relevant orders made by Lindsay J were discharged and removing Messrs Anton Stojic and Mr Bezina as directors from that point. No suggestion has been put in the course of this application that the resolutions, as passed, were inconsistent with the orders made by Lindsay J. It is common ground between the parties that that meeting was, subject to the application of s 1322 of the Corporations Act, inquorate, because article 42 of the Company's constitution required a quorum of two persons qualified to vote in respect of a shareholders' meeting. 7. An initial issue, raised in written submissions prior to the hearing, to which I referred above, was whether the meeting had been validly convened. Mr Goodman, who appears for Mr Simon Stojic, contends that the meeting was validly convened under s 249 of the Corporations Act, and I do not understand any party today to have contended to the contrary. It is well established, including by Central Exchange Ltd v Rivkin Financial Services Ltd (2004) 51 ACSR 441, that a shareholder holding at least 5% of the votes may call a general meeting under that section, and that the power to call that meeting is not qualified by the provisions of a Company's constitution. 8. So far as the lack of quorum for the meeting is concerned, Mr Goodman contends that the absence of a quorum was a procedural irregularity within the meaning of s 1322(1)(b) of the Corporations Act which includes, inter alia, the absence of a quorum at a meeting of a corporation. Mr King, who appears for Mr Anton Stojic, contended to the contrary in written submissions, although he placed less weight on that contention in oral submissions. It seems to me that, as a matter of the language of s 1322(1)(b) of the Corporations Act, the absence of a quorum at a general meeting of a corporation does fall within the definition of "procedural irregularity" in that section. I do not address, in making that observation, any limit to the Court's jurisdiction in dealing with a procedural irregularity, where it is deliberately brought about, to which I will refer below. 9. Mr Goodman in turn relies on s 1322(2) of the Corporations Act, which provides that a proceeding under the Corporations Act is not invalidated because of a procedural irregularity, unless the Court is of the opinion that that irregularity has caused or may cause substantial injustice that cannot be remedied by any order of the Court and by order declares the proceeding to be invalid. 10. The first matter in dispute between the parties was whether the jurisdiction under s 1322(2) of the Corporations Act was available in circumstances where, it is said, Mr Simon Stojic deliberately proceeding with a meeting that was inquorate. Mr King points to the decision of Young J in PW Saddington & Sons Pty Ltd (1990) 19 NSWLR 674, where his Honour observed that a predecessor of s 1322(2), s 539 of the Companies Code 1981, was not available where a party deliberately carried on an invalid meeting and purported to pass resolutions that could only be validated by the Court's intervention under that section. Mr King points out, and I accept, that some earlier decisions, including decisions of this Court, have followed his Honour's approach in that regard. However, it seems to me that that case is distinguishable on its facts, because there is no suggestion that Mr Simon Stojic here convened the meeting intending that Mr Bezina, or indeed Mr Anton Stojic to the extent that he was a holder of non-voting shares in the Company, would not attend it so that it would be inquorate. To the contrary, both were given notice of the meeting and, by correspondence between the solicitors for Mr Simon Stojic and Mr Bezina, Mr Simon Stojic sought to press for Mr Bezina's attendance. 11. Second, there is a substantial body of recent authority that has not followed or has distinguished the decision in PW Saddington, including in circumstances where a meeting was convened in circumstances that it may be valid, but was invalidated by reason of a minority shareholder's not attending that meeting: see, for example, Whitehouse v Capital Radio Network Pty Ltd [2004] TASSC 12; (2004) 48 ACSR 569; Amlaki FZ LLC v Pinnacle Network (Australia) Pty Ltd [2008] FCA 1491 at [8] (albeit the order validating the meeting was there made with faint opposition only); Chalet Nominees (1999) Pty Ltd v Murray [2012] WASC 147. The broader proposition that s 1322 of the Corporations Act is not available in respect of a deliberate act was not accepted in Nenna v Australian Securities & Investments Commission [2011] FCA 1193; (2011) 284 ALR 386 and that decision was in turn followed in this Court in Re DUET Management Co 1 Ltd [2013] NSWSC 817; (2013) 95 ACSR 34. I do not accept that, in the particular circumstances, a procedural irregularity arising from a lack of quorum at the meeting cannot be validated by s 1322(2) of the Corporations Act as a matter of law, at least where the meeting was convened on the basis that it would have been validly held had Mr Bezina attended it, but was not validly held by reason of his not doing so. The proposition that, as a matter of law, the section is capable of applying does not, however, necessarily have the result that it will apply to validate the meeting in the relevant circumstances. That turns upon the question whether the relevant irregularity has caused or may cause substantial injustice that cannot be remedied by any order of the Court, and whether the Court by order declares the proceeding to be invalid. 12. Mr King in turn submits that substantial injustice is established because the meeting would have departed from an interim regime agreed by the consent of several parties on 16 June 2014 and embodied in orders made by Lindsay J on that date. It seems to me, however, that those orders were directed to maintaining the status quo, pending the determination of the question which is in issue in these proceedings in which they were made, namely whether an earlier share issue to Mr Anton Stojic was invalid, so that Mr Simon Stojic had the majority of shares in the Company, or was valid so that Mr Anton Stojic had the majority of shares in the Company. That question was determined by consent orders made by the Court on 18 November 2014, which expressly noted that, when the matter was next listed, it was anticipated that the interlocutory orders that had previously been made in the proceedings would be discharged and the proceedings otherwise dismissed. There does not seem to me to be any basis to read those orders as directed to preserving some wider status quo, in respect of wider disputes between family members which were not in issue in these proceedings. I also do not accept that, even if there were any relevant injustice involved in the passage of a resolution, by which a majority shareholder removes existing directors and replaces them with new directors, that injustice would arise from the lack of quorum for the relevant meeting. The consequence of passage of that resolution would result not from any lack of quorum, or of any procedural irregularity, but simply from the fact that, following the consent orders made by the Court, Mr Simon Stojic has control of the Company, and that he seeks to exercise that control so as to appoint directors of his choice to the Company. 13. That, however, is not the end of the matter. Mr Johnson, who appeared for Mr Bezina, put a significantly narrower proposition, that injustice arose in the relevant circumstances because Mr Bezina had in effect been disenfranchised, because he was put in a position where his attendance at the meeting would have involved significant difficulty. This proposition seems to me to be one which has much more substantial force. The facts which I have summarised above indicate that, first, when Mr Bezina was given notice of the meeting, the resolutions that were proposed were such that, if passed in their form, both the Company and Mr Bezina personally would have been in breach of the orders made by Lindsay J. Mr Simon Stojic did not face that difficulty, because he was not bound by those orders. After Mr Bezina raised concern as to that matter, by his solicitors, albeit late, Mr Simon Stojic foreshadowed the possibility of a change to the resolutions, without identifying what it was. At that point, it seems to me that Mr Bezina had two practical choices available to him. The first was to attend the meeting, and to decide, when he was informed what the resolution was, how to vote upon them or whether to abstain from voting. That course would have necessarily involved a decision made, with little notice, possibly without access to legal advisers, and in circumstances that a decision to vote in a particular manner might or might not have been characterised as involving the appointment of a director in contravention of the orders made by Lindsay J. The other choice available to Mr Bezina, which was the choice which he adopted, was not to attend the meeting. 14. I accept that, as a matter of reality, it may be that Mr Bezina would not have attended the meeting in any event. The position which he adopted in these proceedings, namely that he may not attend any further meeting which is ordered by the Court, is consistent with that possibility. However, that does not seem to me to be to the point. The difficulty which arises in the present case is that Mr Bezina was entitled to vote at the meeting, and it seems to me that the calling of a meeting, in circumstances that the resolution which was proposed was one which involved a potential contempt of court, and the late suggestion that the resolution might be varied, without identifying how it would be varied to allow Mr Bezina to assess that question, raises real difficulty. It seems to me that there is, as Mr Johnson submits, substantial injustice to Mr Bezina, in the conduct of a meeting which proceeded in his absence, after he was required to make the decision whether to attend the meeting and vote or not vote under those circumstances. That is not to say that he would not have made the same decision under circumstances which did not involve that difficulty. However, I do not think it can be said that Mr Bezina would not be exposed to substantial injustice, by the passage of the relevant resolutions in his absence, where he was confronted with a dilemma, involving issues as to potential contempt of court, in respect of his exercise of votes in respect of the resolution, and he did not attend the meeting in those circumstances. It does not seem to me that that position can now be remedied by any order of the Court, and I am satisfied that, for that reason, which is a much narrower proposition than some of the other reasons which were advanced by Mr King, the proceeding in respect of the meeting on 18 November 2014 should be declared to be invalid. 15. I should add that Mr King made a further submission, which I understand to be directed to other relief sought by the plaintiff that the balance of that relief should be stood over pending the resolution of other proceedings involving the estate of the late Ivan Stojic. Mr King summarises, in his submissions, the very complex history of dealings in respect of wills of the late Ivan Stojic, and points to the proceedings which have been commenced in that regard. In particular, the late Ivan Stojic executed wills in November 2013, May 2014 and June 2014, and Mr Anton Stojic was a beneficiary under the first of those wills but not the second or third of those wills. It appears that Mr Simon Stojic seeks probate, or at least foreshadowed that he would seek probate, of the first of those wills and that another family member or members will or may seek probate of one or both of the 2014 wills. An application has already been made in other proceedings in the Probate List in this Court by other family members seeking an order for letters of administration in respect of the June 2014 will. Mr King foreshadows that, on the grant of probate, at least one family member and possibly more than one member may seek family provision orders. 16. It does not seem to me that these matters support a deferral of the determination of this application, which relates to the validity of a corporate act, taken now several months ago, in respect of the Company. The majority shareholder of the Company has, in effect, been deprived of the opportunity to exercise control over a significant period, initially by an allocation of shares which is now accepted was invalid, and has been declared to be such by orders made by consent, and subsequently by reason of an inquorate meeting, at which he sought to pass a resolution to appoint directors of his choice. It may be that the plaintiff in the proceedings in the Probate List, or other interested parties, could seek interlocutory injunctive relief, under s 66 of the Supreme Court Act 1970 (NSW), in respect of dealings with the Company's shares or assets, so as to preserve their claims in those proceedings: Boaz v Hyde [2014] NSWSC 1591. In such an application, the plaintiff or applicant would need to establish a prima facie case or serious question to be tried as to their entitlement to relief and address the balance of convenience, and may be required to give an undertaking as to damages. Whether such relief should be granted is likely to depend on wider evidence as to the dealings between Mr Ivan Stojic and other parties, which has not been read in this application, so far as the issues concerning Mr Ivan Stojic's will is concerned. It seems to me that a deferral of this application would amount to an indirect, and inappropriate, substitute for such relief and would not in any event be justified where Mr Anton Stojic has made no real attempt in these proceedings to establish the matters necessary for interlocutory relief in the probate proceedings. In the light of the view which I have formed as to the validity of the meeting, and the likelihood that further orders will be made as noted below, Mr Anton Stojic and other family members will in any event have an opportunity to bring such application in the Probate List as they are advised. 17. Alternatively, Mr Simon Stojic sought an order under s 1322(4) of the Corporations Act that the resolution was not invalidated by reason of any noncompliance with s 137 of the Companies Act or articles 39 or 40 of the Company's constitution or the absence of any quorum. I am satisfied that the relevant matters were essentially of a procedural nature, and that there is no suggestion that Mr Simon Stojic did not act honestly in that regard, for the purposes of s 1322(6) of the Corporations Act so that the Court would have jurisdiction to make such an order under s 1322(4) of the Corporations Act. I do not address the question whether it will be just and equitable that the order be made, since that is an alternative to the other prerequisites in s 1322(6) which are satisfied. I am not, however, satisfied that I ought to make an order under s 1322(4) of the Corporations Act, since the same reasons that have led me to conclude that there would be injustice to Mr Bezina in allowing the resolutions to stand, in the circumstances in which they have been put and he had not attended the meeting, mean that I cannot be satisfied that it would be a proper exercise of discretion to validate the resolutions. 18. Finally, Mr Simon Stojic seeks an order under s 249G of the Corporations Act that the Court should convene a meeting of members of the company and points to authority that such an order may be made where it is impracticable to call such a meeting, including by reason of the absence or likely absence of a quorum for it: Beck v Tuckey Pty Ltd (2004) 49 ACSR 555 at [35]-[36]. It is an oddity of this application that, notwithstanding that the application continued at some length in the course of this morning, and canvassed a number of issues, it appears that there is no dispute that such an order should be made, so that the proceedings could readily have been determined, as a practical matter, by the making of such an order without the need to canvass the other issues that have been addressed. Indeed, Mr Johnson, who appears for Mr Bezina, had when the matter commenced, offered on behalf of his client to consent to such an order, and made clear throughout the proceedings that his client supported that order. Mr Johnson went further to identify the reasons why such an order should be made, properly acknowledging that there may be a contest as to the status of Mr Bezina's shareholding, by reason of matters that were not canvassed before me, and no certainty in any event that Mr Bezina would attend a further meeting so as to satisfy a quorum requirement, even if the orders made by Lindsay J were vacated. Mr King, who appeared for Mr Anton Stojic, made no submissions in respect of such an order, and it appears that his client also does not oppose it, other than to say that no orders should be made and the matter deferred as noted above. 19. I am satisfied that the relevant impracticability is established, where there is reason to think, as Mr Johnson accepts, that any further meeting called by Mr Stojic will also be inquorate, because Mr Bezina may not attend it, notwithstanding that any obstacle to his attendance arising from the orders made by Lindsay J has been removed. In these circumstances, it seems to me that there would be strong reason to make that order, where Mr Bezina's non-attendance at that meeting would, in effect, allow a minority shareholder to frustrate the exercise of the majority's power to pass a resolution to remove or elect a director and amend the Company's articles. 20. The final issue arising was the question of discharge of the orders made on 16 June and 7 July 2014, and release from certain undertakings that had been given to Bergin CJ in Eq on the latter date. I have referred above to the orders made by Lindsay J in these proceedings on 16 June and to an order made, and undertakings noted by, Bergin CJ in Eq on 7 July 2014. Several of the orders made by Lindsay J were made on Mr Simon Stojic's application, and on his undertaking as to damages, to preserve the position pending the determination of the validity of the issue of shares to Mr Anton Stojic, which has now been determined, as I have noted above. One order was made, as Mr King points out, upon an undertaking by the company, Mr Anton Stojic and Mr Bezina as to damages, which restrained dealings with a specified bank account of the Company. The circumstances in which that order was sought or made were not addressed in evidence or submissions before me. The undertakings noted in paragraphs 1-2 of the orders made by Bergin CJ in Eq, on 7 July 2014, were directed to preserving the financial position of the Company, it appears while control of it was in issue; the third undertaking, given on Mr Simon Stojic's undertaking as to damages, was directed to restraining a board decision being made without notice to Mr Simon Stojic; and a fourth order dealt with another matter. It seems to me that there is no basis to restrain the conduct of the Company, beyond the point at which the proceedings have been determined, with the qualification that it may be that a restraint is appropriate pending any opportunity for the controlling shareholder to assert its control at a validly constituted meeting of the Company. 21. I will hear the parties as to the orders which should be made consequential upon my judgment and as to costs. ********** 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: 19 March 2015