Case: Cordiant Communications Australia Pty Ltd v The Communications Group Holdings Pty Ltd (2005) 55 ACSR 185
Outcome: followed
first question is whether I am here concerned with a "proceeding" as defined in s 1322(1). Counsel for the BT defendants submit that the decision in Howard v Mechtler (1999) 30 ACSR 434 is authority for the proposition that a meeting or resolution passed at a meeting is such a proceeding. In that case Austin J certainly treated a meeting as being a proceeding for the purposes s 1322. However, I doubt whether, in declaring that the relevant resolution was ineffective by virtue of failure to comply with the equivalent of what is now s 201E , his Honour was acting pursuant to s 1322. Austin J raised that ground of invalidity after argument and received written submissions concerning it. His Honour's reasons suggest that he was declaring invalidity upon the basis of his construction of the relevant section rather than exercising a discretion to invalidate an otherwise valid resolution. The BT defendants also point out that in Cordiant Communications Australia Pty Ltd v The Communications Group Holdings Pty Ltd (2005) 55 ACSR 185 at [87], Palmer J observed: There is no doubt that the passing of a special resolution of a shareholders meeting is a "proceeding" under the Corporations Act for the purposes of s 1322. I hold that the adoption of a resolution at a meeting is a proceeding for the purposes of s 1322(1) and (2). If so, and assuming that the irregularity is procedural, the BT defendants may rely upon the operation of s 1322(2) to avoid invalidity of the resolution. The fact that one is considering the validity of a proceeding does not necessarily mean that any possible cause of invalidity is procedural. In Cordiant (2005) 55 ACSR 185, after considering the authorities, Palmer J concluded at [97]: A wrongful denial of a shareholder's statutory right to vote at a meeting is a denial of substantive right and is not a "procedural irregularity" within the scope of s 1322(2) at all. There is much to be said for the proposition that denial of a right to vote is more than a procedural irregularity. The plaintiffs submit that the taking of only one vote deprived them of their entitlement to vote on the question of replacement. However the form of the proposal did not, itself, have this effect. Their disenfranchisement was the consequence of the operation of s 253E. The section suggests that a responsible entity has an interest in both its removal from that position and the choice of any replacement. The final sentence of s 253E would otherwise be unnecessary. It is not difficult to identify reason for treating the outgoing responsible entity as being interested in the choice of a replacement. Firstly, the removal and replacement are closely associated. The enthusiasm of the members for removal will almost certainly depend upon the availability of a suitable replacement, unless they were willing to wind up the scheme. In that case, one might expect them to proceed pursuant to s 601NB rather than by way of application pursuant to s 601FM(1). A responsible entity who did not wish to be removed might make it known that it was hostile to any proposed replacement. If it held sufficient votes to influence the outcome, such a disclosure might dissuade other members from voting for its removal. In those circumstances, and given that both matters must be resolved at the same meeting, one would be inclined to think that the responsible entity was sufficiently interested in the replacement to be disqualified from voting on that issue. Further, if the responsible entity were removed, but no replacement was chosen, the outgoing responsible entity would be obliged to apply for the winding up of the scheme. As I have previously pointed out, it would normally be responsible for supervising that winding up. Thus it would, in effect, continue as responsible entity and would, presumably, derive a benefit from so doing. In that way, too, it would have an interest in the choice of a replacement. In the circumstances I am not satisfied that either City Pacific or Contra Proferentum would have been permitted to vote on a separate motion to choose a replacement responsible entity. There has been no suggestion that the proposal was drawn in order to cause disenfranchisement. It must be taken at face value. Section 601FM prescribes the procedure for removing and replacing a responsible entity. In that sense it is procedural. Given the requirement that such steps be effected by extraordinary resolutions, the form in which it is cast is significantly less important than absence of a quorum, a matter expressly defined to be a procedural irregularity. Absence of a quorum will mean that a resolution may be adopted by the vote of a smaller number of persons than is contemplated by law or by the relevant constitutional document. That is not a risk in the case of an extraordinary resolution, given the requirement for a 50% vote in favour of the relevant proposal.