Potential for GOCs, statutory bodies to validate procedural irregularities at meetings

Failure to meet quorum requirements for a meeting of shareholding members, board members or directors can result in ineffective resolutions being passed.

All Government Owned Corporations (GOCs) are subject to the Corporations Act 2001 (Cth), as are some statutory bodies. Your GOC or statutory body may be able to take advantage of s 1322 of the Corporations Act to validate a decision taken at a meeting of the board or statutory body or some other proceeding or matter that did not comply with the requirements of the body’s constitution or a provision of the Corporations Act.

Section 1322 of the Act provides that various proceedings or actions taken under that Act, or in relation to a corporation, are not necessarily invalid just because there was an irregularity in procedure.

The general rule is that the court will declare that an action is invalid if, in the circumstances, a substantial injustice has been caused or might be caused that cannot be cured by an order of the court. The absence of a quorum is just one of the defects that may be validated by court order under s 1322.

In the recent case of Chalet Nominees (1999) Pty Ltd v Murray [2012] WASC 147, Le Miere J made declarations under s 1322(4)(a) of the Corporations Act to the effect that a meeting of members and two resolutions passed at that meeting were valid, even though the meeting itself did not comply with the quorum requirements from the company’s constitution.

The case

In Chalet Nominees, a meeting of members of James Point Pty Ltd was held on 23 December 2011 following the issue of a valid notice of meeting. Four people attended – an observer, the company secretary, and two proxies representing the interests of a 53 per cent shareholder in the company.

The company’s constitution required the presence of two voting members to form a quorum. It also stipulated that a person representing a shareholding company and a proxy could each count towards a quorum.

One of the proxies present at the meeting declared there to be a quorum. He was then appointed chair and moved two resolutions, which were passed.

Chalet Nominees, a shareholding company in James Point, applied to the court under s 1322 for declarations that the meeting and the resolutions passed at it were invalid.

Chalet Nominees’ argument was twofold — that the conduct was deliberate and therefore incapable of remedy under s 1322; and that a substantial injustice had, or would, flow from the irregularity.

Justice Le Miere found that no substantial injustice had flowed from the lack of a quorum. The other members of James Point had been appropriately notified of the meeting and the proposed resolutions to be considered but, presumably, chose not to attend.

Validation under s 1322

The cases on this topic have expressed differing views about whether an irregularity that is deliberate can be validated under s 1322.

A particularly strong advocate of the argument that deliberate conduct cannot be cured by s 1322 is Young J of the New South Wales Supreme Court, e.g. National Australia Bank Ltd v Market Holdings Pty Ltd (2000) 50 NSWLR 465.

The alternative line of thought was first expressed by Byrne J in the Queensland Supreme Court case of Re Pembury Pty Ltd [1993] 1 Qd R 125. It has since been cited with approval in other Queensland decisions and in the Federal Court case of Nenna v Australian Securities and Investments Commission [2011] FCA 1193.

As Justice Byrne pointed out in Re Pembury, 'nothing in the language of s. 1322 indicates that the defects and deficiencies which it identifies as procedural irregularities must arise from inadvertence' and therefore s 1322 should 'not be restricted in scope to instances of inadvertence or accidental non-compliance'. Justice Byrne also noted that, unlike s 1322(3) which requires an accidental omission, the s 1322(1) definition simply refers to 'the absence of a quorum' with no qualifier excluding deliberate behaviour or otherwise.

Both lines of authority were discussed in Nenna. Middleton J found in support of the Re Pembury position, stating that 'nowhere in s. 1322(4) or (6) is there reference to "irregularities" or "procedural irregularity" in express terms' and that:

  • It may be … that deliberate noncompliance with the Act is more likely to be an irregularity which will result in a finding that substantial injustice has been, or is likely to be, caused.

Entities that can rely on s 1322

Section 67 of the Government Owned Corporations Act 1994 states that the Corporations Act applies to GOCs except so far as the GOC Act provides otherwise. All GOCs are corporations under the Corporations Act and can rely on s 1322 to validate a procedural irregularity.

Whether a statutory body is subject to s 1322 is a more complex question if the Act that creates the body is silent about the application of the Act to it. To be a ‘corporation’ within the meaning of the Corporations Act, an entity must be either a company, a body corporate or an unincorporated body that has legal status or can hold property, but it cannot be an ‘exempt public authority’ or a corporation sole.

An exempt public authority is a body corporate incorporated in Australia that is either a ‘public authority’ (which is not defined any further) or is an instrumentality or agency of the Crown in right of a State of Territory.

Some statutory bodies are expressly exempt from the Corporations Act altogether, such as the TransLink Transit Authority. Others, such as the Wet Tropics Management Authority, are subject to certain parts of the Corporations Act.  If the establishing Act does not state that the statutory body is an exempt public authority, the common law test of public authority needs to be discharged to determine whether the body is a ‘corporation’ for the Corporations Act.

If a statutory body’s establishing Act is silent on the application of the Corporations Act, such as Tourism Queensland’s, the common law test for a ‘public authority’ would need to be used to decide if the body is a corporation.

Tips for clients

If you find that your GOC or statutory body has undertaken an activity or made a decision that may not be in compliance with the requirements of its constitution or the Corporations Act, the key questions to be answered are:

  • Is your Government entity subject to s 1322 of the Corporations Act?
  • Is the irregularity of a type that can be remedied under s 1322?
  • What is the actual effect of the irregularity?

Crown Law can provide advice on whether your statutory body is a corporation under the Corporations Act and therefore subject to certain of its provisions, including s 1322. We also can provide specific advice on whether an irregularity in an activity by or for a GOC or statutory body can be remedied by s 1322 or in some other way.

The information in this publication is provided for general purposes only. It is not to be relied on as a substitute for legal advice. Crown Law and the Department of Justice and Attorney-General accept no liability for losses caused by reliance on the material in this publication. Formal legal advice should be obtained for particular matters.

Published: 15 October 2012

Author: Melinda Pugh