Crusader Ltd, Re; Re Morris [1994] QSC 320

IN THE SUPREME COURT OF QUEENSLAND O.S. No. 919 of 1994 Brisbane Before Moynihan SJA [Crusader Limited] IN THE MATTER of The Articles of Association of Crusader Limited (ACN 009 785 326) - and - IN THE MATTER of Graeme Oriel Morris REASONS FOR JUDGMENT - MOYNIHAN J. Judgment delivered : 8 December, 1994 CATCHWORDS: O.64 declaration - construction of Articles of Association whether Director retiring by rotation was re-elected. Counsel: Applicant - Muir QC & Kelly Respondent - Jackson QC Solicitors: Applicant - Clayton Utz Respondent - Corrs Chambers Westgarth Hearing Date: 25 November, 1994 -- 1 of 6 -- IN THE SUPREME COURT OF QUEENSLAND O.S. No. 919 of 1994 Brisbane Before Moynihan SJA [Crusader Limited] IN THE MATTER of The Articles of Association of Crusader Limited (ACN 009 785 326 - and - IN THE MATTER of Graeme Oriel Morris REASONS FOR JUDGMENT - MOYNIHAN J. Judgment delivered : 8/12/94 This is an application pursuant to O.64 for a declaration that, upon the true construction of the Articles of Association of Crusader Limited (the Company), the Applicant remained a director of the Company after the conclusion of its Annual General Meeting on 21 October 1994. That is disputed by the Company. Other relief sought by the summons was dealt with before me. The Company is a publicly listed company with some 3,000 shareholders. At the Company's annual general meeting on 21 October 1994 one of the items of ordinary business was the re-election of directors retiring by rotation. The Applicant, it may be accepted was such a director and, being eligible, offered himself for re- election. The motion that he be elected as a director was lost. At the meeting there was no motion to elect another person to the office vacated by the Applicant, or that -- 2 of 6 -- 2 the vacated office should not be filled. Article 59 of the Company's articles provides that until otherwise determined by a general meeting the number of directors is not to exceed eleven nor to be less than three. The articles go on to provide that a general meeting may increase or decrease the number of directors and, in the case of reduction, determine which of them shall retire. At the time of the meeting of 21 October there were seven directors, two of whom, including the applicant, stood for re-election. Article 67 provides that the Company may, by an ordinary resolution, remove any director before the expiration of the directors term of office and may, again by an ordinary resolution, appoint another person to the position. Any person so appointed remains in office only so long as the director replaced would have held office. An extraordinary meeting of shareholders of the Company has been called for 12 December 1994. The business will be to remove the Applicant as a director in accordance with Article 67 and to re-elect certain directors who will retire in accordance with Article 60. That Article deals with casual vacancies. The contention that the Applicant remains a director depends on the construction of Articles 68 and 71. They are among a group of Articles dealing with the rotation of directors. Article 68 relevantly provides that a director retiring by rotation: "... shall retain office until the dissolution of the meeting at which his successor is elected." Article 71 provides: "The Company at the general meeting in which a Director retires in manner of aforesaid may fill up the vacated office by electing a person thereto and in default the retiring Director shall be deemed to have been re-elected unless at such meeting it is resolved not to fill up such -- 3 of 6 -- 3 vacated office." Before I return to the construction of the Articles I should mention that the Company submits there is in any event no utility in granting the relief sought because the resolution proposed for the meeting of 12 December may well overtake the practical effect of any declaration. I do not accede to the submission. Any outcome of the meeting, even if it is a foregone conclusion, is not retrospective. If the Applicant continued as a director after the meeting of 21 October he is entitled to have it recognised. Moreover as I have said the Company is a general company. It is, it seems to me, in the public interest that the holding of the office of director should be recognised where it is in dispute and that a person who is so entitled should have the opportunity to participate in the affairs of the Company as a director. The contention that the Applicant continued as a director as founded on the decision of the English Court of Appeal in Grundt v. Great Boulder Proprietary Mines Limited (1948) 1 Ch. 145. Grundt was a director retiring by rotation at an annual general meeting of the company. He was proposed for re-election but the resolution was lost. No other person was proposed for re-election in his stead and no resolution was proposed to reduce the number of directors in office. The Court of Appeal concluded that the necessary condition specified in the articles to produce the result that the retiring director was automatically re-elected had been satisfied. The Court disapproved the single judge decision of Spencer v Kennedy (1926) Ch. 125 and approved the single judge decision in Holt v Caterol (1931) 47 T.L.R. 332. The relevant Articles in Grundt are comparable to those in this case. It is true that in Grundt there was no equivalent to the Company's Article 67. -- 4 of 6 -- 4 However, I am not persuaded that that serves to distinguish Grundt for the purpose for which it is relied on here. Grundt was accepted by the text writers as having the consequence that a retiring director was deemed to continue as a director notwithstanding that a motion for re-election was lost. Table A of the English Company's Legislation was subsequently altered to provide that a retiring director offering himself for re-election was deemed re-elected unless at the meeting it was expressly resolved not to fill the vacancy or unless a resolution for the re-election of the director was put to the meeting and lost. That seems to accord with the accepted view of the application of Grundt. In Re OCT Resources Limited (1992) 1 Qd.R. 417 McPherson J at 419 referring to Grundt construed a comparable article as operating to reinstate a director retiring by rotation provided the director was eligible and offered for re-election and whether or not the company in fact acted positively to re-elect him. Petch v. Kennedy (1971-1973) ACLC 27 187 was referred to by the Company, particularly Jacobs JA's remarks at 27, 193. There he mentioned that "it was a difficult question whether a meeting had expressly resolved not to fill the vacant office". He remarked that the purpose of Articles such as those under consideration was to be sure there was no inadvertent vacancy among directors although the way in which this was dealt with may vary. It was decided in Petch that a director had impliedly offered himself for re-election and that the equivalent to the Article in issue here meant he continued as a director. Jacobs JA's remarks therefore have no direct application and rather beg the question here. It is true that the authorative status of Grunt is changed from the position dealt with by Needham J in Stephen v. Southern Cross Exploration NL (1975-1976) ACLC -- 5 of 6 -- 5 40 - 253. Grunt has, however, apparently been regarded as settled law. It supports the effect of Article 68 and 71 contended for on the Applicant's behalf here. I am not persuaded it should be departed from. In the circumstances, therefore, the Applicant is entitled to the declaration he seeks. -- 6 of 6 --