Case: Gambotto v WCP Limited [1995] HCA 12 ; (1995) 182 CLR 432
Outcome: discussed
was made to Gambotto v WCP Limited [1995] HCA 12 ; (1995) 182 CLR 432 ( Gambotto ) as supporting the proposition that a company can act bona fide and fairly, and for the benefit of the company as a whole, but cannot do so if that overrides the rights of existing shareholders. I do not think that decision takes the Residents' position that far. In that case, a small minority shareholder challenged the validity of a proposed meeting to consider amending the company's constitution to enable a member entitled to 90% of the issued shares to compulsorily acquire the balance. The Court therefore had to address the limits of the power to alter the constitution of the company to enable the appropriation of the shares of a minority. Clearly, it is a very different type of case. The proposed resolution was not shown to be for a proper purpose, nor was it shown to be one which did not operate oppressively in relation to minority shareholders: see per Mason CJ, Brennan, Deane and Dawson JJ at 445 and 448. Their Honours pointed out also at 445 that the position may have been different if the right to expropriation had already existed in the company's constitution. Senior counsel for the Residents made the submission that the "interests of the members as a whole" was somehow different from the interests of the Housing Associations themselves. In cross-examination of a solicitor from Gilbert + Tobin (the solicitors for the Council) he elicited that their advice to the Council, and to a working group including certain Housing Association representatives, did not separately address the interests of the members of the Housing Associations as distinct from those of the Housing Associations themselves. The significance of the distinction, if legally there is one, was not made clear. It is argued that the Housing Associations could not alienate their interests in the town camps under the respective Special Purposes Leases or Crown Leases either absolutely or for 40 years. That was said to flow from the proper construction and understanding of the objects and purposes of the Housing Associations. I have already addressed that contention. No reason was put why those objects and purposes should impose restrictions on the powers of the Housing Associations which preclude their capacity to agree to the proposed subleases as Housing Associations, and different restrictions on their powers because of the interests of their members as a whole. The plurality judgment in Gambotto 182 CLR pointed out at 444 that the observations of Lindley MR in Allen v Gold Reefs of West Africa Ltd [1900] 1 Ch 656 at 671 that the power of the majority to alter the articles of association of a company must be exercised in a lawful manner and "bona fide for the benefit of the company as a whole" was inappropriate where the proposed resolution involved a conflict of interests and advantages. The plurality judgment said at 444: It seems to us that, in such a case not involving an actual or effective expropriation of shares or of valuable proprietary rights attaching to shares, an alteration of the articles by special resolution regularly passed will be valid unless it is ultra vires, beyond any purpose contemplated by the articles or oppressive as that expression is understood in the law relating to corporations. Consistent with the expression in Gambotto , in Peters' American Delicacy Co Ltd v Heath [1939] HCA 2 ; (1939) 61 CLR 457 , Dixon J when upholding the validity of an alteration of the articles which discriminated against holders of partly-paid shares in favour of the majority shareholders said at 513 that the resolution involved no oppression, no appropriation of an unjust or reprehensible nature and did not imply any purpose outside the scope of the power. Those propositions require some comment. There is, in my view, some mixing of concepts in them. In the first place, as the High Court pointed out in Gambotto 182 CLR, these particular considerations arise where the proposed conduct of the entity expropriates or is intended to facilitate the expropriation of the interests of particular members at the expense of others. That is not this case. The rights of the members of the Housing Associations inter se are unchanged. Secondly, the measure in fact of what is in the interests of the entity itself and its members as a whole will necessarily depend upon the constitution of the entity: a company formed "for profit" is likely to have a constitution which permits conduct which may not be permitted in the case of a not-for-profit association; in fact, each of the Constitutions and Rule Books of the Housing Associations prohibits them from trading for profit. But it does not follow that, somehow, the measure of what is "oppressive or unfair ... is necessarily" applied more rigorously in the case of not-for-profit associations. The measure will still be the objects and purposes of the association. Thirdly, the second proposition set out in the preceding paragraph is really axiomatic. If a particular course of action is not authorised by the constitution, it may not be undertaken. On the second issue, it is necessary therefore that the Residents show that the agreement to enter into the proposed subleases is contrary to the interests of the members as a whole, or effectively to the interests of the Housing Associations. Inevitably, on such issues, there are matters of judgment. Different members will make different commercial judgments about what is, or is not, in the interests of the Housing Associations. The Residents' submission is that their rights as members of the Housing Associations to have the Housing Associations "separately conduct its activities at the town camps for the benefit of its existing members" have been sold for 40 years for $1, without any other return provided as of right for the benefit of the members. I do not accept that contention. It mis-describes their entitlements under the proposed subleases. The general effect of the proposed subleases is set out above. If there is power under the Constitutions or Rule Books of the Housing Associations to enter into arrangements such as the proposed subleases, the aspirational objectives of the Housing Associations may be fulfilled or served by the Housing Associations arranging for another entity, such as the Executive Director, to engage in or conduct activities at the town camps to fulfil or serve those objectives for the benefit of the members.