Court of Appeal Supreme Court New South Wales

• Medium Neutral Citation: Beck v LW Furniture Consolidated (Aust) Pty Ltd [2012] NSWCA 76
• Hearing dates: 2 February 2012
• Decision date: 05 April 2012
• Before: Campbell JA at [1]; Young JA at [215]; Sackville AJA at [228]

Decision

(1) Appeal allowed.

(2) Orders 2 and 3 in the court below be set aside.

(3) Remit the matter to the primary judge, or such other judge as the Chief Judge in Equity might decide, to determine whether the Company should be wound up.

(4) Cross-Appeal dismissed.

(5) Respondents to pay the costs of the Appellant of the appeal and cross-appeal.

(6) Costs of the first trial to follow the event of the second trial.

(7) Respondents to have a certificate under the Suitors Fund Act 1951 concerning those costs of the Appellant of the appeal that they have been ordered to pay, which are assessed as being 80 percent of the combined costs of the Appellant of the appeal and the cross-appeal.

[Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.]

• Catchwords: COMPANIES - management and administration - directors and other officers - appointment removal and retirement of directors - family company incorporated in 1971 - directors consisting of founder, his wife and their two children - no voting shares ever issued - in 2003 the founder passed away, and his wife had become incapable - both children ceased to be directors - result was no validly appointed directors - the son, who was a de facto director, purported to exercise reserve power under articles to return directors to quorum by electing his wife as an additional director - application by appellant for winding up; COMPANIES - management and administration - directors and other officers - appointment removal and retirement of directors - whether director validly appointed - director appointed to fill casual vacancy until next annual general meeting - articles of association required directors to retire and seek re-election at each annual general meeting, failing which directors who retired at annual general meeting were deemed to be re-elected - directors did not retire at each annual general meeting but purported to re-elect themselves as "retiring" directors - consequently director appointed to fill casual vacancy was not, since his first annual general meeting, ever validly elected or deemed elected despite acting as de facto director for decades - default re-election provision not effective where the director had not retired at the annual general meeting - remaining de facto director not director; COMPANIES - management and administration - directors and other officers - appointment removal and retirement of directors - whether additional director validly appointed by de facto director - articles of associated contained a defect clause that cured any defects in acts done by directors - whether this clause operated to cure fact that the remaining de facto director was never re-elected - held that initial appointment was not defective, as it had simply run its natural course - no defect for the articles of association to cure - de facto director not able to validly appoint additional director; COMPANIES - management and administration - directors and other officers - appointment removal and retirement of directors - power of court to rectify corporate act which is taken in contravention of corporate constitution - Corporations Act 2001 s 1322 considered - where primary judge granted relief in relation to purported appointment of additional director by de facto director - whether purported act contravening constitution by person never validly appointed to office is a "contravention" that can be cured by s 1322(4)(ii) - remedial provisions to be construed broadly - held (per Young JA and Sackville AJA) "contravention" does not mean every invalid act done in relation to the corporate constitution, despite wide meaning - additional director's appointment not capable of being validated under s 1322; ESTOPPEL - issue estoppel - Anshun estoppel - appellants did not challenge, in previous proceedings, the validity of the appointment of the remaining director - where validity of appointment of director was not obvious or complete argument in previous proceedings - where argument would have required substantial additional resources to make - where previous litigation not necessarily sufficiently related to present proceeding to give rise to Anshun estoppel - not unreasonable to not rely on argument against validity of appointment; APPEAL AND NEW TRIAL - denial of natural justice - defendants in court below did not extend their submissions on Corporations Act 2001 s 1322 issue to appointment of additional director - appellant lost opportunity not merely to make submissions, but to lead evidence on the topic and make submissions on that evidence - s 1322 finding essential to underlying relief claimed by appellant - held (per Campbell JA dissenting) matter to be remitted to consider whether s 1322 order should be made; COMPANIES - management and administration - directors and other officers - powers under articles - directors empowered to allot unissued voting shares - voting shares comprised of par value shares - consideration of Company Law Review Act 1988 s 1427 repealing par value share provisions - Company Law Review Act to be interpreted as a whole - "repeal" of provision may only require that certain parts of the provision are inoperative - held (per Campbell JA dissenting) validly appointed director would have power to issue voting shares
• Legislation Cited: Acts Interpretation Act 1901 (Cth); Companies (New South Wales) Code; Companies Act 1961; Companies Ordinance 1962 (ACT); Company Law Review Act 1998 (Cth); Company Law Review Bill 1997; Corporations Act 2001 (Cth); Corporations Law; Suitors Fund Act 1951
• Cases Cited: Albert Gardens (Manly) Pty Limited v Mercantile Credits Limited (1973) 131 CLR 60; Australasian Memory v Brien [2000] HCA 30; (2000) 200 CLR 270; Australia Hydrocarbons NL v Green (1985) 10 ACLR 72; Beck v LW Furniture Consolidated (Aust) Pty Limited [2011] NSWSC 235; Beck v Weinstock [2010] NSWSC 1068; (2010) 241 FLR 235; C G Maloney Pty Ltd v Noon [2011] NSWCA 397; Champerslife Pty Ltd v Manojlovski [2010] NSWCA 33; (2010) 75 NSWLR 245; David Grant & Co Pty Ltd v Westpac Banking Corporation (1995) 184 CLR 265; Dicker v Angerstein (1876) 3 Ch D 600; Elite Protective Personnel Pty Ltd v Salmon (No 2) [2007] NSWCA 373; Eyre v Milton Proprietary Limited [1936] 1 Ch 244; FAI General Insurance Co Ltd v Southern Cross Exploration NL (1988) 165 CLR 268; Federal Commissioner of Taxation v St Helens Farm (ACT) Pty Ltd (1981) 146 CLR 336; Grant v John Grant & Sons Pty Ltd (1950) 82 CLR 1; Henderson v Henderson (1843) 3 Hare 100; 67 ER 313; James v Surf Road Nominees Pty Ltd (No 2) [2005] NSWCA 296; Jordan v Avram (1997) 141 FLR 275; Knight v F P Special Assets Ltd (1992) 174 CLR 178; Law Society of New South Wales v Bruce (1996) 40 NSWLR 77; Logue v Shoalhaven SC [1979] 1 NSWLR 537; Lunn v Cardiff Coal Company (No 3) [2003] NSWSC 789; (2003) 177 FLR 411; Mansfield v Director of Public Prosecutions for Western Australia [2006] HCA 38; (2006) 226 CLR 486; Monie v Commonwealth of Australia (No 2) [2008] NSWCA 15; Morris v Kanssen [1946] AC 459; Nece Pty Ltd v Ritek Incorporation (1997) 24 ACSR 38; Nenna v Australian Securities and Investments Commission [2011] FCA 1193; 284 ALR 386; North Sydney Brick & Tile Co Ltd v Darvall (1989) 17 NSWLR 327; NRMA Ltd v Gould (1995) 18 ACSR 290; NSW Rugby League Ltd v Australian Rugby Football League Ltd [1999] NSWCA 9; (1999) 30 ACSR 354; Official Trustee v Buffier [2005] NSWSC 839; (2005) 54 ACSR 767; Omega Estates Pty Ltd v Ganke (1962) 80 WN (NSW) 1218; Ooregum Gold Mining Co of India Ltd v Roper [1892] AC 125; Oshlack v Richmond River Council (1998) 193 CLR 72; Owners of 'Shin Kobe Maru' v Empire Shipping Co Inc (1994) 181 CLR 404; Patton v Buchanan Borehole Collieries Pty Ltd (1992) 178 CLR 14; Phonogram Ltd v Lane [1982] QB 938; PMT Partners Pty Ltd (in liq) v Australian National Parks and Wildlife Service (1995) 184 CLR 301; Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589; Re Ausram Resources Ltd [2004] FCA 823; Re Australian Continental Resources Ltd (1975) 1 ACLR 405; Re Centennial Coal Co Ltd [2006] NSWSC 62; (2006) 56 ACSR 698; (2006) 226 ALR 341; Re Continental Pacific Insurance Co [2002] NSWSC 789; Re MLC Ltd [2006] FCA 1357; (2006) 60 ACSR 187; Re Yanollee Pty Ltd (in liq) [2006] NSWSC 705; (2006) 24 ACLC 1087; Sheahan v Londish [2010] NSWCA 270; (2010) 80 ACSR 337; (2010) 244 FLR 64; Tomlinson v The Broken Hill Proprietary Co Ltd (Victorian Supreme Court, Southwell J, 20 September 1984, unreported); Weinstock v Beck [2011] NSWCA 228; (2011) 252 FLR 462; Winpar Holdings Ltd v Goldfields Kalgoorlie Ltd [2001] NSWCA 427; (2001) 166 CLR 144; 40 ACSR 221; Yat Tung Investment Co Ltd v Dao Heng Bank Ltd [1975] AC 581
• Category: Principal judgment
• Parties: Tamar Rivqa Beck (Appellant/Cross-Respondent); L W Furniture Consolidated (Aust) Pty Limited (First Respondent/First Cross-Appellant); Amiram David Weinstock (Second Respondent/Second Cross-Appellant); Helen Weinstock (Third Respondent/Third Cross-Appellant)
• Representation: Counsel; R G McHugh SC; D J Barnett (Appellant/Cross-Respondent); D F Jackson QC; J O Hmelnitsky (Respondents/Cross-Appellants); Solicitors; McCabe Terrill Lawyers Pty Ltd (Appellant/Cross-Respondent); Baker & McKenzie (Respondents/Cross-Appellants)
• File Number(s): 2010/324963

Decision under appeal

• Jurisdiction: 9111
• Citation: Beck v L W Furniture Consolidated (Aust) Pty Limited [2011] NSWSC 235
• Date of Decision: 2011-04-01 00:00:00
• Before: Barrett J
• File Number(s): 2010/324963

Judgment

Nature of the Case

1 CAMPBELL JA: Mr Leo Weinstock and his wife Mrs Hedy Weinstock brought about the incorporation on 30 April 1971 of LW Furniture Consolidated (Aust) Pty Ltd ("the Company"). They were its first directors. On 29 June 1973 their two children, Tamar Beck and Amiram David Weinstock were purportedly appointed directors of the Company.

2 Without intending any disrespect in doing so, I shall refer to these members of the Weinstock family as "Leo", "Hedy", "Tami", and "Ami".

3 All the issued shares in the Company were preference shares that conferred no right to vote.

4 By 30 July 2003 Tami had resigned as a director, Leo had died, and Hedy had become incapable. On 30 July 2003 Ami, purporting to act as the sole remaining director, purported to appoint his wife Helen Weinstock ("Helen") as an additional director ("the Purported Appointment"). Hedy died in July 2004.

5 Tami brought proceedings in the Equity Division of the Supreme Court of New South Wales in which she contended that Ami was not a director of the Company on 30 July 2003 or thereafter, and that the Purported Appointment was invalid. Tami sought the winding up of the Company on the just and equitable ground (s 461(a)(k) Corporations Act 2001 (Cth)). She submitted that the absence of directors, and the absence of shareholders who could ever elect directors, had the effect that the Company was entirely without governance, that there was no way in which a system of governance could be restored to it. She contended that winding up was the appropriate way of dealing with the constitutional and administrative vacuum that resulted from that state of affairs: cf Lunn v Cardiff Coal Company (No 3) [2003] NSWSC 789; (2003) 177 FLR 411 at [60]-[61]; Official Trustee v Buffier [2005] NSWSC 839; (2005) 54 ACSR 767 at [39]-[40]. For a time, she also sought relief under the provisions of s 233 Corporations Act, but that claim was abandoned at the trial.

6 Ami, Helen, and also (it was claimed) the Company, brought an interlocutory process in the nature of a cross-claim in those proceedings. They sought a declaration that Ami and Helen were validly appointed directors, or alternatively certain orders under s 1322 Corporations Act to regularise the governance of the Company.

7 Barrett J (as his Honour then was) made an order that validated the appointment of Helen as a director. His Honour decided that Ami did not hold office as a director on 30 July 2003, and in consequence the purported appointment of Helen as a director on 30 July 2003 would not (absent its validation under s 1322) have been valid. He decided that, in a way I shall explain in more detail below, validation of the purported appointment of Helen opened the way for proper governance to be restored to the Company. In consequence he declined to order the winding up of the Company: Beck v LW Furniture Consolidated (Aust) Pty Limited [2011] NSWSC 235.

8 Tami appeals against the order validating the appointment of Helen, and seeks that this Court make an order winding up the Company.

9 Ami, Helen, (and also, purportedly, the Company) bring a cross-appeal that challenges the judge's decisions that Ami did not hold office as director on 30 July, 2003 and that Helen had not been validly appointed. They also contend that the primary judge should have dismissed Tami's proceedings on the basis of the principle in Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589. By a Notice of Contention, they submit that the Court in its discretion should have refused to make a winding up order for the Company.

10 The Company does not trade, but holds a complex set of interests in various companies and other commercial ventures associated with the Weinstock family. It is undisputed that the assets of the Company are worth numerous millions of dollars.

11 At the hearing of the appeal Mr RG McHugh SC and Mr DJ Barnett appeared for Tami. Mr DF Jackson QC and Mr JO Hmelnitsky appeared for Ami, Helen, and the Company

12 The following issues that arise on the appeal and cross-appeal are dealt with in this judgment:

1. Whether Ami held office as a director of the Company on 30 July 2003 and thus had power to appoint Helen as an additional director. I have concluded that the primary judge was right in holding that Ami was not a director on 30 July 2003.

2. Whether, even if Ami did not hold office as director on 30 July 2003, his purported appointment of Helen is validated by a provision of the Articles that validates certain purported corporate acts that would otherwise be invalid. I have concluded that that article is not effective to validate Helen's appointment.

3. Whether Tami's failure to contest, in certain earlier proceedings that she brought relating to the Company, the validity of Ami holding office as a director, results in her being precluded by an Anshun estoppel from now contending that Ami did not hold office as a director on 30 July 2003. I have concluded that the judge was right in holding that there was no such estoppel.

4. Whether the validation of the Purported Appointment fell outside the powers of the court under s 1322(4)(a) because it was not an "act ... purporting to have been done... in relation to a corporation" or because there had been no "contravention of ... a provision of the constitution" of the Company. I have concluded that the making of an order of the type the court made is within the powers conferred by s 1322(4)(a).

5. Whether the primary judge was mistaken in holding that, if the Purported Appointment were to be validated, the way would be opened for the Company to issue voting shares. I have concluded that the primary judge was right in holding that in that circumstance the Company would have the power to issue voting shares.

6. Whether, in light of the issues raised and argued in the case below, the court failed to accord natural justice when it made the order validating the Purported Appointment. I have concluded that this submission should succeed, and that in consequence the appeal should succeed and the matter should be remitted for further hearing.

13 Because the matter is to be remitted this judgment does not deal with other matters, such as whether an order under s 1322(4) should be made, and whether it is appropriate to order that the Company be wound up, which would need to be decided before the disputes between the parties can be finally decided.

The Shares in the Company

14 It will be necessary to refer to numerous provisions of the Articles of Association of the Company. Like the primary judge, I will set out most of the relevant provisions in an appendix to these reasons.

15 Clause 3(1) of the Articles of Association with which the Company was originally incorporated made provision for the capital of the Company to be $20,000 divided into 20,000 shares of one dollar each. These comprised five 'A' 5% convertible preference shares, five 'B' redeemable preference shares, ten 'C' redeemable preference shares, ten 'D' redeemable preference shares, and a total of 19,970 ordinary shares of one dollar each, made up of 1,997 shares each of classes called 'E'-'N' inclusive. Like the primary judge, I will refer to shares of these various classes as 'A' shares, 'B' shares, etc, without according them their full titles.

16 All five of the 'A' shares were allotted on 30 April 1971. Four of them were allotted to Leo, and the remaining share was allotted to a Mr Nagel, who held the share on trust for Leo. A meeting of directors on 1 April 1972 resolved to allot three 'C' shares. One of them was to be allotted to Hedy, one to Tami, and the remaining 'C' share to Ami. There was a resolution that certificates 3, 4 and 5 be issued, and sealed with the common seal of the Company.

17 The Register of Members records that Hedy held eight 'C' shares, said to have been allotted on a date in 1992 and comprised in certificate No 3. However, the minute book of the Company contains no resolution in 1992 relating to any allotment of shares to Hedy. The primary judge did not decide, and nor is it necessary that this Court decides, precisely how many 'C' shares were allotted in total to Hedy.

18 Two 'D' shares were ostensibly issued on 20 April 1975 to LW Furniture (Consolidated) Pty Ltd. Ami controls that company. The Judge expressed some doubt about whether those shares had been validly allotted, but did not decide whether they had been validly allotted. It is not necessary for us to enter into that question.

19 No shares have ever been issued by the Company apart from those that I have mentioned.

20 The rights attaching to the five 'A' shares were set out in Article 3(2). The holders of those shares had no right to vote at any general meeting, but were entitled to notice of, and to attend, a general meeting. They had the right to a fixed cumulative preferential dividend of 5% per annum on the capital paid up. Leo had the right, during his lifetime, to elect to convert the 'A' shares into shares that conferred the right to vote. However, he never exercised that right.

21 Both the 'C' shares and the 'D' shares had no right to vote at a general meeting, but the holder of any such shares was entitled to notice of, and to attend, general meetings. Both the 'C' shares and the 'D' shares were liable to be redeemed at par on or before 30 June 2016, at the option of the Company. As well, each of them was to be redeemed upon the death of the holder.

22 There was a power to declare dividends on the 'C' and 'D' shares.

23 By reason of these provisions, for the whole of the almost 40 years that had elapsed between the incorporation of the Company and the date of the decision appealed from, the Company had no shareholders with the right to vote at a general meeting.

24 It is appropriate to mention here that, after the death of Leo the Company took steps to redeem the eight 'C' shares that it accepted Hedy had held. Tami took proceedings to challenge the validity of the redemption. She did so, no doubt, because the redemption might have the effect of lessening her interest in the Company. Under Leo's will Tami received a one third interest in his shares in the Company, equivalent to one and two-thirds 'A' shares. Under Hedy's will Tami received half of Hedy's shares in the Company, ie four 'C' shares. The primary judge held that on a winding up of the Company at a time when no voting shares had been issued the assets of the Company would be returned to shareholders in the proportions in which they held shares. If that is correct, and if the 'D' shares had been validly issued, then on a winding up at a time when Hedy's shares were unredeemed, Tami would receive six and two-thirds seventeenths of the net value of the Company, ie approximately 39.2%. If a winding up were to occur after Hedy's shares had been successfully redeemed, Tami would receive two and two-thirds ninths of the net value of the company, ie approximately 29.6%.

25 At first instance, Hamilton AJ held that the shares were not validly issued as redeemable preference shares, and hence their redemption was not valid: Beck v Weinstock [2010] NSWSC 1068; (2010) 241 FLR 235. That decision was reversed on appeal to this Court: Weinstock v Beck [2011] NSWCA 228; (2011) 252 FLR 462. This Court declared that the redeemable shares had been validly redeemed. On 10 February 2012 the High Court of Australia granted Special Leave to Appeal against that decision, but the appeal to the High Court has not yet been argued.

26 In the course of his reasons in Weinstock v Beck, Handley AJA (with whom Giles JA agreed) gave a clue which might explain the unusual corporate structure of the Company. Handley AJA said, at [106]-[107]:

"The case concerns a Robertson scheme to reduce death and estate duties payable on the death of the founder of a company. Under the scheme the founder owned shares which give him (or her) control of the company for life. The founder could pay salaries and dividends to himself and others during his lifetime at his discretion but the rights attached to those shares lapsed on death and their value accrued to other shareholders: Robertson v FCT [1952] HCA 71, 86 CLR 463.

This appeal concerns an incomplete Robertson scheme which has gone badly wrong."

The Directors of the Company

27 The primary judge recorded at [16] that the matter was argued on an agreed footing that Leo and Hedy continued in office beyond the first annual general meeting ("AGM") of the Company (which was held on 30 October 1972) and were therefore in office as directors on 29 June 1973.

28 Article 65 provided that until otherwise determined by a general meeting, the number of directors shall be not less than two, nor more than five. It provided that the first directors would be Leo and Hedy. No general meeting has ever purported to alter the provision concerning the number of directors. While the issued shares of the Company remain as they are, it will not be possible for a general meeting to pass any resolution altering the permissible number of directors.

29 Article 66 provides:

"At every annual general meeting each director shall retire from office and be eligible for re-election. Retiring directors shall act as directors throughout the meeting at which they retire."

30 The effect of that Article was that Leo and Hedy were required to retire from office at the first AGM after their election.

31 Article 67 provides:

"The Company at the meeting at which a director so retires may fill the vacated office by electing a person thereto, and in default the retiring director shall if offering himself for re-election and not being disqualified under the Act from holding office as a director be deemed to have been re-elected, unless at that meeting it is expressly resolved not to fill the vacated office or unless a resolution for the re-election of that director is put to the meeting and lost."

32 Because of the absence of voting shares it was not possible for the Company at the meeting at which a director retired to fill the vacated office by electing a person to that office. However, the "in default" provision in Article 67 provided an alternative means by which a retiring director could be deemed to have been re-elected, even if there was no corporate resolution to re-appoint him or her.

33 The minute book of the Company contains a page whose heading proclaims it is minutes of an extraordinary general meeting of shareholders held on 29 June 1973. Those attending are recorded as being Leo and Hedy. The minutes record "the consent of all members to the holding of an Extraordinary General Meeting at short notice" for the purpose of considering, and if thought fit passing, a certain special resolution. It goes on to record a decision:

"that the following Resolution be passed as a Special Resolution -

That Tamar Beck and Amiram David Weinstock be appointed Directors and they shall hold office until the holding of the next Annual General Meeting of the Company."

34 The minutes record that an AGM of members was held on 31 December 1973. All five of the then shareholders of the Company are recorded as being present. They record a resolution:

"that any director retiring in accordance with the provisions of the Company's Articles of Association be re-appointed."

35 There are minutes of an AGM of members held in December of each of 1974, 1975 and 1976, each of which records a resolution in the same terms as that recorded concerning the 1973 AGM.

36 The minutes for AGMs in each of the years 1977 to 1982 record that all five members were present and that a resolution was passed:

"Resolved that Directors retiring by rotation be and are hereby reappointed for the ensuing year."

37 It is hard to grasp what that resolution means. Article 68 provides:

"The Company may from time to time by ordinary resolution passed at a general meeting increase or reduce the number of directors and may also determine in what rotation the increased or reduced number is to go out of office."

38 However, the minute book does not contain anything that purports to be a resolution of a general meeting that related in any way to rotation of directors. In any event, because of the absence of voting shares, no resolution relating to the rotation of directors could have been passed at any general meeting. Thus, Article 66 continued to require each director to retire at every AGM.

39 Minutes for AGMs in 1983 and some (but not all) subsequent years were in evidence. The primary judge held that those meetings were not relevant to the questions before him. That aspect of his decision is not disputed.

40 The minute book shows that from April 1975 the usual participants in a meeting of directors were Leo and Ami, but that sometimes Hedy and Tami were also present. Tami resigned as a director on 8 January 1982, and is not shown as being present at directors' meetings after that date.

The Purported Appointment on 30 July 2003

41 Leo died on 29 July 2003.

42 It was common ground on the pleadings that Hedy was diagnosed with Alzheimer's disease, that by at least 29 July 2003 she had experienced a total loss of capacity, and that in consequence her office as director of the Company had become vacant by no later than 29 July 2003. As I have noted, she died in July 2004.

43 The minute book contains a document that the heading declares to be a "meeting of director" of the Company held on 30 July 2003. Ami is recorded as being the chairman, and as being the director who was present. The minute records:

BUSINESS:	The company was notified of the death of Leo Arie Weinstock (Director) on 29th July 2003
	Hedy Jadwiga Weinstock (Director/Secretary) who has advanced Alzheimer's disease was declared incapable of performing the duties of Director/Secretary of the company according to clause 73(d) of the Articles of Association of the company where a director
	"becomes of unsound mind or a person whose person or estate is liable to be dealt with in anyway under the law relating to mental health"
APPOINTMENT OF DIRECTOR:	It was RESOLVED in accordance with clause 87 of the Articles of Association of the company which states;
	"...if and so long as their number is reduced below the number fixed by or pursuant to the Articles of the Company as quorum of directors, the continuing directors or director may act for the purpose of increasing the number of directors to that number or of summoning a general meeting of the company, but for no other purpose."
	that Amiram David Weinstock being the sole remaining director of the company appoint Helen Weinstock as an additional director.
	Helen Weinstock has consented to be a director."

Issue 1 - Was Ami a Director on 30 July 2003?

44 The issues raised by the cross-appeal are logically prior to the other issues, and hence I shall deal with them first.

The Primary Judge's Reasoning

45 The primary judge held that the meeting on 29 June 1973 ([33] above) was an effective appointment of Tami and Ami as directors, in the terms of the resolution that the minutes record as having been passed. He held that, notwithstanding that the non-existence of voting shares had the consequence that there could not be a resolution of a general meeting, and that the resolution purported to be a resolution of a general meeting, it took effect as an appointment under Article 69. He held that the appointment was effective because the two people present on 29 June 1973 were in fact the only directors of the Company; they were purporting to transact company business; they evinced an intention to resolve then and there to appoint Tami and Ami as additional directors until the next AGM; and they actually had power under Article 69 to make such an appointment. These steps in the primary judge's reasoning are not in dispute on the appeal.

46 The next step in the argument was a detailed consideration of what counted as an "annual general meeting" within the meaning of the articles, as they were applicable to the Company from time to time. That topic was of importance because of the role that "annual general meeting" played in Article 66 and 69, and because the concept of an AGM was imported, by the words "the meeting at which a director so retires" into Article 67. This step in his Honour's reasoning is also not in dispute. However, as it provides a foundation for some later steps in the argument that are the subject of dispute, I shall set it out:

"73 The articles contain no explicit definition of 'annual general meeting', in the sense that there is no provision beginning, 'In these articles, "annual general meeting" means...'. There are, however, two provisions of significance. First, article 45 requires that an annual general meeting 'be held in accordance with the provisions of the Act'. Second, article 1 says:

'In these Articles ... words or expressions contained in these Articles shall be interpreted in accordance with the provisions of the Interpretation Act of 1897 and of the Act as in force at the date at which there Articles become binding on the Company.'

74 In both these provisions, 'the Act' takes its meaning from the following part of article 1:

'In these Articles ... 'the Act' means the Companies Act, 1961.'

75 Section 136 of the Companies Act 1961 required that a company hold an 'annual general meeting' at least once in every calendar year and not more than fifteen months after the holding of the last such meeting. Section 5(1) contained the following definition:

"'Annual general meeting' in relation to a company means a meeting of the company required to be held by section 136.'

76 This definition formed part of the Companies Act 1961 at the time of [the Company's] incorporation on 30 April 1971 and therefore at the date at which the articles became binding on the company. It follows that article 1, by means of the words quoted at paragraph [73] above, picked up the statutory definition of 'annual general meeting' in s 5(1) and carried it into the articles as a whole. This imported statutory definition, reinforced by article 45, makes it clear that a particular general meeting will properly be regarded as an 'annual general meeting' if the holding of it is 'required' by s 136 of the Companies Act 1961.

77 Section 18 of the Companies (Application of Laws) Act 1981 (NSW) had the effect that, on 1 July 1982, the Companies (New South Wales) Code (being the provisions of the Companies Act 1981 (Cth) applied as laws of New South Wales by s 6 of the Companies (Application of Laws) Act) came to 'operate to the exclusion of the provisions of the Companies Act 1961 ... in relation to acts, matters and things in relation to which' the Companies (New South Wales) Code provisions applied. Section 240(1) of that Code required every company to hold a general meeting called the 'annual general meeting' at least once in every calendar year and within other timing constraints imposed by the section. That provision of the Code therefore operated 'to the exclusion of' s 136 of the Companies Act 1961. It follows that, from and after 1 July 1982, no company was 'required' by the Companies Act 1961 to hold an annual general meeting and that any annual general meeting in fact held could not properly be described as 'held in accordance with the provisions of' the Companies Act 1961 (to quote the words of article 45) or as 'required to be held by' s 136 of the Companies Act 1961 (to quote the words of the statutory definition imported into the articles).

78 After 1 July 1982, the pre-existing articles of [the Company] continued to be its articles. This was the effect of s 21 of the Companies (Application of Laws) Act. On that day, however, the requirement under article 45 that an annual general meeting be held 'in accordance with the provisions of the Act' (that is, the Companies Act 1961) and the articles' imported definition of 'annual general meeting' became devoid of content and meaning, unless, upon a proper construction of the articles, as continued in operation, each reference to 'the Act' in the articles included a reference to replacing or superseding legislation so that the articles' express and imported references to the annual general meeting provisions of the Companies Act 1961 came to include a reference to the substituted provisions on that subject in s 240(1) of the Companies (New South Wales) Code .

79 The possibility that the reference to 'the Act' in article 45 might be read in that way makes it necessary to refer again to the part of article 1 set out at paragraph [73] above.

80 The Companies Act 1961, as in force on 30 April 1971, obviously did not contain any provision that might cause references to it in a company's articles to include references to legislation replacing or superseding it. The Interpretation Act 1897 (NSW) then in force dealt, in s 25(1), with the case where an Act was 'repealed and re-enacted' (with 're-enacted' including 're-made'). Section 25(1) provided that a reference to that Act in 'an Act or an instrument made under an Act' included a reference to the Act 'as amended or re-enacted'.

81 This provision of the Interpretation Act 1897 in force on 30 April 1971 did not, via the words of article 1 quoted at paragraph [73] above, cause the reference to the Companies Act 1961 in the article 1 definition of 'the Act' (and in the imported definition of 'annual general meeting') to become a reference instead to the provisions applying in this State from 1 July 1982 as the Companies (New South Wales) Code. There are two reasons for this. First, the process by which the Code provisions came to be operative did not entail the repeal and re-enactment of the Companies Act 1961. As stated at paragraph [77] above, the Code provisions were made by the legislature of New South Wales to operate from 1 July 1982 'to the exclusion of' those of the Companies Act 1961, which Act remained unrepealed for a further quarter of a century: see Statute Law (Miscellaneous Provisions) Act 2008 (NSW), s 4 and the first item in part 1 of schedule 4. Second, the articles of LWC are not 'an instrument made under an Act'. As is made clear by s 16 of the Companies Act 1961, persons desiring the incorporation of a company having articles of association from inception were required to lodge those articles as a prerequisite to obtaining incorporation, while s 29(1) made it clear that the articles so lodged were 'registered with the memorandum'. There is thus no concept of a company's articles somehow proceeding from or being produced pursuant to the Companies Act so as to be 'an instrument made under an Act'.

82 On this analysis, therefore, the position is as follows:

(1) The Companies Act 1961 ceased, on 1 July 1982, to be the source of any requirement that [the Company] hold annual general meetings.

(2) The provisions of the Companies (New South Wales) Code with respect to annual general meetings applied of their own force to [the Company] from and after 1 July 1982.

(3) Neither the reference in article 45 to the holding of an annual general meeting 'in accordance with the provisions of the Act' nor the definition of 'annual general meeting' imported into the articles from the Companies Act 1961 was altered, as of 1 July 1982, so as to refer instead to an annual general meeting held in conformity with the Companies (New South Wales) Code.

83 It follows that annual general meetings of [the Company] held after 1 July 1982 in obedience to the requirements of the Companies (New South Wales) Code - and later the Corporations Law of New South Wales - were not 'annual general meetings' within the articles' definition imported from the Companies Act 1961 and were accordingly not meetings referred to in articles 66, 67 and 69 and elsewhere in the articles as 'annual general meetings'.

84 It is also relevant to note that a proprietary company such as [the Company] has not been subject to any statutory obligation to hold an annual general meeting since the First Corporate Law Simplification Act 1995 (Cth) came into operation on 9 December 1995. That Act abolished the requirement for an annual general meeting in relation to relevant companies. Thus, even if

(a) it is wrong to think that, after 1 July 1982, the definition of 'annual general meeting' in the constitution was devoid of meaning and there was no requirement under article 45 that such a meeting be held); and

(b) the article 1 definition of 'annual general meeting' and the article 45 requirement, both referring to 'the Act', are properly regarded as referring to any provision for the time being in force that requires a company such as [the Company] to hold an annual general meeting,

the position was that, after 9 December 1995, there was no statutory requirement for the holding of such a meeting and therefore no content to either the article 1 definition or the article 45 requirement."

47 The judge held that the inability of any member of the Company to vote at an AGM did not mean that in the period up to 1 July 1982 it was impossible for an AGM to be held. Every shareholder in the Company had, in accordance with the articles defining the terms on which their shares were issued, an entitlement to notice of, and to attend, any general meeting of the Company. At such a meeting each shareholder could "consider accounts and reports laid before the meeting by the directors and ... engage in the discussion that is part of that process": [87].

48 The judge was satisfied that the various meetings that were held prior to 1 July 1982 and purported to be AGMs in the minute book, were "annual general meetings" of the Company, within the meaning of the articles. That step in the argument is also not in dispute.

49 The primary judge did not decide at what precise times Leo and Hedy ceased to be directors. He took that course because what was of critical importance was whether there was a validly appointed director on 30 July 2003, and Leo and Hedy had both ceased to be directors by no later than 29 July 2003.

50 The judge took the view that there was a close connection between Article 66 and Article 67. When Article 67 referred to "the meeting at which the director so retires" it was referring to the AGM "at" which each director was required to retire by Article 66. Further, the expression "so retires" refers to retirement in the manner required by Article 66. He accepted that if a director retired from office pursuant to Article 66 the inability of the AGM to pass a resolution to "fill the vacated office by electing a person thereto" did not prevent there being any directors in office after the AGM. Rather, the failure of the meeting to pass a resolution that filled the vacated office caused the remaining portion of Article 67, beginning "and in default" to come into operation. It was, seemingly, the contention of Ami in the court below that the "and in default" portion of Article 67 had the effect that he was deemed to have been re-elected as a director at the AGM on 31 December 1973.

51 The judge did not accept that argument. The appointment of Ami on 29 June 1973 as director under Article 69 was only "until the next following annual general meeting". The judge held that that meant that Ami's office had ceased at the moment the AGM began. The "and in default" provision in Article 67 applied only to a director who retired at an AGM, and thus did not apply to Ami in December 1973. It followed that Ami was not a director after the start of the 31 December 1973 AGM, and thus was not a director who retired at any subsequent AGM. It further followed that Ami was ineligible to be deemed reappointed by the "and in default" portion of Article 67 at any subsequent AGM. By the same process of reasoning, Tami had not been a validly appointed director after the commencement of the December 1973 AGM.

52 The primary judge based that construction of the articles on Eyre v Milton Proprietary Limited [1936] 1 Ch 244; Australia Hydrocarbons NL v Green (1985) 10 ACLR 72; NSW Rugby League Ltd v Australian Rugby Football League Ltd [1999] NSWCA 9; (1999) 30 ACSR 354 and Tomlinson v The Broken Hill Proprietary Co Ltd (Victorian Supreme Court, Southwell J, 20 September 1984, unreported).

53 Eyre v Milton Proprietary Limited concerned a company article 85 of which provided:

"At the ordinary meeting in the year 1925 and in every subsequent year, one-third, or the nearest number next below one-third, of the whole number of directors, shall retire from office, and the meeting shall elect qualified members in their place. A retiring director shall be eligible for re-election at the meeting at which he retires and shall act as a director throughout that meeting."

54 The article went on to stipulate the manner in which the directors who were to retire would be identified. Article 90 provided:

"The Board may from time to time appoint additional directors, but so that the total number of directors shall not exceed the prescribed maximum, but any director so appointed shall hold office only until the next following ordinary general meeting of the company, and shall then be eligible for re-election."

55 At the time in question the company had a total of eight directors. One was the managing director, who under a particular clause of the articles was not liable to retire by rotation or be taken into account in determining the rotation of retirement of directors. Two were "additional directors" appointed under article 90. The question at issue was whether one director, or two directors would be required to retire at the next ordinary general meeting. The English Court of Appeal unanimously held that only one director was required to retire. The reasoning of Lord Wright MR at 254-5 was:

"But at the ordinary general meeting it is clear under art. 90 that the two additional directors will not be in office. They are to hold office 'only until the next following ordinary general meeting of the company,' so that at the moment when the next following ordinary general meeting of the company begins they are no longer in office, whereas the other five directors, whether retiring or not, are to act as directors throughout the meeting. There is no express provision as in art. 90 that their office is to continue only until - that is to cease just before - the ordinary general meeting. It follows that, in my opinion, at the critical time, which is the commencement of the ordinary general meeting, the number of directors to be considered is the number of directors exclusive not only of the managing director but also of the two additional directors. That being so, the number to be considered is only five and 'one-third, or the nearest number next below one-third' of five is obviously one ..." (emphasis added)

The "critical time" to which his Lordship referred is, fairly clearly, the time as at which a decision must be made about how many directors are obliged to retire.

56 Romer LJ at 257 agreed with that reasoning. Greene LJ at 257-8 said:

"... it appears to me that arts. 85 and 90 show a clear distinction in the status of additional directors appointed under art. 90, and directors who retire by rotation under art. 85 at the relevant moment. The status of those appointed under art. 90 when the ordinary general meeting opens is that they are not directors. On the other hand, at the moment when the meeting opens a director retiring by rotation is entitled to be present in his capacity as director, notwithstanding that he is to retire, and may retire, at the next moment." (emphasis added)

57 Australian Hydrocarbons NL v Green concerned a company that had four directors immediately prior to a particular annual general meeting. One of them had been elected at a previous annual general meeting, while the other three were appointed by the board. Article 98 required a person "not being a retiring director" to give a certain period of notice to be eligible for election as a director (77-78). Another article enabled a director to be appointed fill a casual vacancy or as an addition to the board, and required that "any director so appointed shall hold office only until the next following annual general meeting of the company and then shall be eligible for re-election". The three directors who had been appointed by the board did not give the requisite period of notice. At 78 Hodgson J (as his Honour then was) followed Eyre v Milton Pty Ltd and accepted that the three directors in question were not "retiring directors" within the meaning of article 98, and thus their failure to give the requisite notice resulted in them being ineligible for election.

58 In New South Wales Rugby League Ltd v Australian Rugby Football League Ltd Powell JA (Meagher JA agreeing) said at [76], 373 that a provision in articles of association that certain directors should "hold office until the Annual General Meeting ..." resulted in a director losing office "either just before, or immediately upon, the commencement of the annual general meeting".

59 Tomlinson v The Broken Hill Proprietary Co Ltd concerned a set of articles; article 105 of which required a person "not being a retiring Director" to give certain advance notice if that person was to be eligible for election as a director. Two directors in question, who had not given any such notice, had been appointed during the previous year by the directors under article 88. It provided that any director so appointed "shall hold office only until the next following Annual General Meeting". Southwell J, at 5, referred to Eyre v Milton Pty Ltd as constituting "strong authority that the second and third defendants ceased to be directors at the commencement of the Annual General Meeting". However he distinguished Eyre on the basis that article 101 exempted from a requirement for retirement in rotation three categories of directors, one of which was a director "appointed and vacating office under the provisions of article 88". Article 102 went on to say:

"The Company at any annual general meeting at which any directors retire in manner aforesaid may fill up all or any of the vacated offices by electing a like number of qualified persons to be Directors."

60 Southwell J held, at 6:

"It is clear that article 101 acknowledges the difference between a director appointed under article 88 who vacates office, a director ceasing to hold office under article 99 and a director retiring under article 103, but when one looks at the next following article, and where the reference is made to the words, 'At which any directors retire in manner aforesaid', it seems to me that the words, 'in manner aforesaid' must refer to the three methods by which a director may cease to be a director either by vacating office or by ceasing to hold office or retiring. Accordingly, it seems to me to follow that the word, 'retire' in article 102 encompasses those three means by which a person may cease to be a director."

61 Southwell J held that that construction of "retire" in article 102 was also applicable in article 105.

62 After referring to the passage I have just quoted from Tomlinson, the primary judge continued, at [101]-[103]:

"There is no room for any similar approach in this case. The words 'so retires' in article 67 can only refer to retirement under the immediately preceding article 66, which is retirement 'at' the meeting itself, that is, after it has begun. The reference to a person holding office 'only until' the meeting does not appear until the second part of article 69; and the words 'so retires' in article 67 - placing emphasis on 'so', in the sense of 'thus' or 'in this way' - obviously cannot refer forward to article 69 as well as back to article 66.

The clear conclusion, as a matter of construction, is that, since the second part of article 67 (beginning 'and in default') refers only to the case where an office vacated by retirement 'at' the meeting is not filled by the meeting itself, the default mechanism cannot and does not apply to a position on the board that was held 'only until' the meeting by a person appointed under article 69.

It follows that, since the positions occupied by Mrs Beck and A D Weinstock from 29 April 1973 were of that kind, the default mechanism in the 'default' part of article 67 could not operate in relation to either of them at the 31 December 1973 annual general meeting, with the result that neither of them was a director beyond the point at which that meeting commenced."

The Argument Against the Primary Judge's Reasoning

63 Mr Jackson QC submits that "retirement" can apply to ceasing to hold office through an action or event that is not voluntary (as happens when there is a compulsory retiring age for the office). He submits that as a matter of language there is no reason why a director appointed to fill a casual vacancy, and who ceases to hold office pursuant to Article 69, should not be regarded as a "retiring director" for the purposes of Article 66, and thus, as being eligible for a deemed re-election under Article 67. He submits that the articles in the present case should be construed on the basis that it was contemplated that no voting shares would be issued prior to the death of Leo. He refers to the remarks of Handley AJA in Weinstock v Beck at [106] ([26] above). He submits that, when it was contemplated no voting shares would be issued, it was necessary to have a mechanism to maintain continuity of the board without a requirement that the company in general meeting perform some positive act, and that Article 66 provided that mechanism. He submits it should be construed so that all directors, whenever and however appointed, were to retire from office at the annual general meeting, and then all be deemed re-elected pursuant to Article 67. He submits that that construction would enable the board to be composed in a manner determined by the directors.

64 I do not accept that argument. First, the articles in the present case are not relevantly distinguishable from those in Eyre v Milton Pty Ltd as a matter of language. Though Mr Jackson submitted at one stage that in Eyre v Milton Pty Ltd "there does not appear to have been an article like Article 66 in the present case", article 85 in Eyre v Milton Pty Ltd included a provision that said "a retiring director shall be eligible for re-election at the meeting at which he retires and shall act as a director throughout that meeting."

65 Second, a difficulty with the construction that Mr Jackson propounds is that if his construction of Article 66 were correct it would be unnecessary, and perhaps contradictory, for Article 69 to state "any director so appointed shall hold office only until the next following Annual General Meeting and shall then be eligible for re-election". Rather, the general provision in Article 66 should be read as being subject to the more specific provision in Article 69. So construed, Article 66 requires the retirement of each person who at the time of an AGM is a director. Because directors elected to fulfil a casual vacancy had ceased to hold office immediately before the AGM, Article 66 does not apply to them.

66 Third, there is a textual problem with reaching the conclusion that it was contemplated that no voting shares would be issued before the death of Leo. It is that Article 3(2)(e) expressly gives Leo the right to convert the 'A' preference shares into voting shares.

67 Fourth, even if it were correct that it was intended that no voting shares be issued prior to the death of Leo, that would not compel the correctness of the construction that Mr Jackson advocates. Leo and Hedy would be deemed re-elected under Article 67 at each annual general meeting for as long as they were not disqualified under the Act from holding office and offered themselves for re-election. By them making a casual appointment under Article 69 after each annual general meeting, the composition of the board could be in accordance with their wishes. Further, if that succession of casual appointments were made, there would be at least one director in office at the death of Leo. Even if there were only one director in office at Leo's death, that director could act, under Article 69 and Article 87, to increase the number of directors the board that continued in office after Leo's death could take whatever steps were appropriate to continue the corporate governance of the Company.

68 In my view, the primary judge was right in concluding that Ami ceased to be a director on 31 December 1973.

Issue 2 - Was Helen Validly Appointed?

69 Mr Jackson submits that even if Ami was not a validly appointed director on 30 July 2003, there is an independent reason why Helen was validly appointed. This argument was not put to the primary judge, but Mr McHugh raises no objection to it being put for the first time on appeal.

70 The argument is based on Article 92, which provides:

"All acts done by any meeting of the directors or of a committee of directors or by any person acting as a director shall, notwithstanding that it is afterwards discovered that there was some defect in the appointment of any such director or person acting as aforesaid, or that they or any of them were disqualified, be as valid as if every such person had been duly appointed and was qualified to be a director."

71 The primary judge has referred to the resolution of 30 July 2003 as "the purported appointment of Helen Weinstock by a de facto director having no formal power to appoint" [163]. The primary judge found, at [122], that each of Ami and Helen "in fact acted as a director from the date of appointment or purported appointment (29 June 1973 in one case and 30 July 2003 in the other) and has continued to do so up to the present". He held that Ami and Helen "continue to be de facto directors today". Mr Jackson submits that on 30 July 2003 Leo was "acting as a director" within the meaning of Article 92. He submits that if the primary judge was right in concluding that Ami was not validly appointed on 30 July 2003 (as I have held is the case) it has been "afterwards discovered that there was some defect in the appointment of" him, within the meaning of that article. Thus, he argues that the purported appointment of Helen is deemed to be "as valid as if ... [Ami] had been duly appointed and was qualified to be a director". Mr Jackson submits that this is consistent with the conclusion reached by Blackburn J in Re Australian Continental Resources Ltd (1975) 1 ACLR 405 at 412-414.

72 In Australian Continental Resources there was what purported to be a meeting of the board of the relevant company on 3 April 1975. Of the two persons acting as directors on that day, one, Mr Cowper, had never been validly appointed. The other, Mr Macarthur-Stanham, had been validly appointed, but had ceased to be a director by virtue of later disposing of his qualification shares (412). The meeting purported to appoint Messrs Elliott and Ware as additional directors. Blackburn J at 412-414 held that if the only problem with the appointments of Messrs Elliott and Ware was the lack of qualification shares on the part of Mr Macarthur-Stanham at the time the appointments were made, their appointments would be validated by s 119 of the Companies Ordinance 1962 (ACT). Section 119 provided:

"The acts of a director, manager or secretary are valid notwithstanding any defect that may afterwards be discovered in his appointment or qualification."

73 Blackburn J held that Mr Macarthur-Stanham had power by himself, under an article not materially different to Article 87 in the present case, to increase the number of directors, and that s 119 was not limited to acts of directors affecting persons outside the company. Blackburn J continued, at 413-4:

"Counsel also relied on the principle of Morris v Kanssen [1946] AC 451; [1946] 1 All ER 586 and the dicta of Kitto J in Grant v John Grant & Sons Pty Ltd (1950) 82 CLR 1, at 52 and 53; the distinction between the defective exercise of a power and the non-exercise or non-existence of the power. But the principle derived by Kitto J from Morris v Kanssen cannot apply to Mr Macarthur-Stanham and what he did at the meeting on 3 April. He had been appointed in the first place - it must be presumed, validly; and the defect arose from his later disqualification under art 71(d). In my opinion, therefore, the purported appointment of Messrs Elliott and Ware by Mr Macarthur-Stanham on 3 April 1975 acting as a director at what purported to be a directors' meeting, was an act validated by s 119; strictly speaking, it was an act which, when s 119 is applied to it, is not invalidated by Mr Macarthur-Stanham's lack of qualification shares."

Their appointment was, however, invalid for another reason, in that they themselves did not hold the necessary qualification shares. Blackburn J made an order under s 366(3) Companies Ordinance 1962 (ACT) to cure the invalidity arising from that source. I consider his reasons for so doing at [124]-[129] below.

74 The written submissions signed by Mr Jackson's instructing solicitor stated that Blackburn J:

"...concluded that the effect of s 119 of the Companies Ordinance was to validate the appointment of Messrs Elliott and Ware by Mr Macarthur-Stanham in circumstances where Mr Macarthur-Stanham had not been qualified for appointment as a director."

75 That statement has the potential to mislead. Mr Macarthur-Stanham had been validly appointed as a director, but had ceased to be a director by virtue of the article that required him to continue to hold qualification shares. That difference is important for understanding the reasoning of Blackburn J in the passage I have quoted at [73] above. As well, understanding that passage requires a discussion of the cases on which Blackburn J relied.

76 Morris v Kanssen [1946] AC 459 concerned a company that had an article in identical terms to the Article 92 upon which Mr Jackson relies. There was also at the time a statutory provision identical to s 119 Companies Ordinance 1962. Lord Simonds (with whom Viscount Simon, Lord Thankerton, Lord Porter and Lord Uthwatt agreed), said at 471:

"There is, as it appears to me, a vital distinction between (a) an appointment in which there is a defect or, in other words, a defective appointment, and (b) no appointment at all. In the first case it is implied that some act is done which purports to be an appointment but is by reason of some defect inadequate for the purpose; in the second case there is not a defect, there is no act at all. The section does not say that the acts of a person acting as director shall be valid notwithstanding that it is afterwards discovered that he was not appointed a director. Even if it did, it might well be contended that at least a purported appointment was postulated. But it does not do so, and it would, I think, be doing violence to plain language to construe the section as covering a case in which there was been no genuine attempt to appoint at all. These observations apply equally where the term of office of a director has expired, but he nevertheless continues to act as a director, and where the office has been from the outset usurped without the colour of authority."

77 Grant v John Grant & Sons Pty Ltd (1950) 82 CLR 1 concerned a resolution that had been voted for by three people purporting to be directors of the company. Two of them had not been validly appointed, because there had been no extraordinary resolution increasing the number of directors and thereby creating vacancies to which they could be appointed (34). Williams J, at 34, referred to an article and statutory provision like those in Morris v Kanssen and to the principle I have quoted from Lord Simonds' speech. He said that the article requiring there to be a resolution to increase the number of directors

"... was a substantive provision which had to be fulfilled before they could be appointed, and one that could not be overridden by a section of an Act or an article dealing with slips or irregularities in appointments."

78 Kitto J agreed, but at 52-3 said that the passage that Williams J had quoted from Lord Simonds' speech:

"... justifies a broader proposition. The passage points out that the section and article relate only to the case where a slip has been made in appointing a director, and it draws a distinction between such a case and a case in which substantive provisions relating to an appointment have been ignored or overridden. The reason for the distinction is, I think, that a defect in an appointment can be said to exist only where some requirement has been neglected in exercising a power to make an appointment. The section and the article presuppose an appointment in fact made by a person or body having power to appoint, and they refer to a slip in the making of the particular appointment in question. It is therefore necessary to distinguish between the defective exercise of a power to appoint and the non-exercise or non-existence of such a power. The proposition which I think is justified by Morris v Kanssen is that where a person acts as a director, either without being appointed or in pursuance of a purported appointment made by a person or body not authorized to make an appointment, neither the section nor the article operates to validate his actions."

79 In Albert Gardens (Manly) Pty Limited v Mercantile Credits Limited (1973) 131 CLR 60 Barwick CJ (with whom McTiernan and Gibbs JJ agreed) said at 65 that "the settled view" of an article of the type of Article 92 is that it is:

"effective to validate acts done as director on behalf of a company by a person appointed a director by a person or body with power under the articles to appoint directors."

80 The particular act that was validated in Albert Gardens was execution of corporate securities by a director who at the time of appointment had lacked qualification shares.

81 Mr McHugh submits that the Article 92 does not operate to validate Helen's appointment. He submits that the articles refers to "some defect in the appointment of any director or person acting [as a director]". He submits that the article does not refer to, or "cure", the lack of any appointment; it only operates in respect of an appointment that is defective in some relevant way. He submits that there was an appointment of Ami, "until the next following Annual General Meeting", but that that appointment came to its natural end and there was no subsequent re-appointment. Thus, he submits that there was not any "defect" in the appointment that could be cured by Article 92.

82 In my view, this submission is correct, and is justified by Morris v Kanssen, Grant v John Grant & Sons and Albert Gardens. At the time he purported to appoint Helen as a director, Ami was, in the words of Lord Simonds, someone whose "term of office of a director ... has expired, but he nevertheless continues to act as a director". He was not, in the words I have quoted from Albert Gardens "a person ... with power under the articles to appoint directors". Properly understood, the passage in Australian Continental Resources on which Mr Jackson relies does not lead to the conclusion that he seeks to draw from it. Article 92 does not validate Ami's purported appointment of Helen as a director.

Issue 3 - Anshun Estoppel

83 In 2007, Tami and a company with which she was connected brought proceedings in the Equity Division of the Supreme Court of New South Wales. The defendants in those proceedings included Ami, Helen and the Company. The Amended Statement of Claim in those proceedings raised a multitude of allegations of disparate types. The claims for relief included a claim for a declaration that the eight 'C' shares in the Company that Hedy held were not preference shares, and hence were not able to be redeemed. It also sought a declaration that the purported redemption of such shares was void and of no effect. In the Amended Statement of Claim the Company was referred to as "LWC".

84 The pleading that founded claims for relief concerning the 'C' shares was:

"57D. Further and in the alternative:

(a) At the date of her death Hedy still held 8 C Redeemable Preference Shares in LWC;

(b) The rights privileges and conditions of such shares to the extent that they were express were set out in clause 30.4 of the Constitution of LWC;

(c) Those rights privileges and conditions conferred no preference of any kind over other shares in LWC;

(d) In the premises such shares were not preference shares within the meaning of section 9 of the Corporations Act and were, accordingly, unable to be redeemed;

(e) The share register of LWC is liable to be rectified so as to reverse the purported redemption of Hedy's LWC shares;

(f) Ami wrongfully caused the purported redemption to occur and has refused or neglected to take any steps to rectify the register of LWC or to cause the true value of the LWC shares to be paid to the Hedy estate."

85 Ami's defence to that pleading admitted paragraph 57D(a), and denied the rest of the allegations in 57D.

86 All the claims made in the 2007 proceeding were settled, except for the claim relating to whether the 'C' shares were redeemable, and had been redeemed. It is that claim that was decided by Hamilton AJ, by this Court, and is awaiting its ultimate determination in the High Court: [24] above.

87 As Hamilton AJ recorded in his judgment at [6] the argument raised three questions:

"(1) Whether the 8 'C' Class Shares held by Hedy in LWC were redeemable preference shares within the meaning of the Corporations Act 2001 (Cth) ('the CA').

(2) Whether there was sufficient evidence of a resolution to redeem those shares.

(3) Whether the redemption should have been at fair market value and whether their fair market value was no greater than the $8 that was paid on their redemption."

88 As Hamilton AJ decided question (1) by holding that the shares were not redeemable preference shares, there was no need for him to decide the second and third questions. However, he expressed his view on the second question at [33]:

"As to the question of the sufficiency of a resolution to support the redemption, I am of the view that there was evidence of a sufficient resolution. It is correct, as submitted for the plaintiffs, that there was not in evidence the resolution or a minute of the meeting at which it was passed. However, there was a clear statement in a letter written at the time by a director of the company to the effect that such a resolution had been passed by the directors. In the absence of any contrary evidence I regard that as sufficient evidence of the requisite resolution. It may be that the plaintiffs could rely as well, if they needed to, on s 1274B of the CA."

89 Only the first of the questions identified by Hamilton AJ was considered in the Court of Appeal, and the outcome in the Court of Appeal turned on the answer to that question.

90 In [36] of her Points of Claim in the present proceeding Tami identified the basis upon which she claimed that it was just and equitable for the Company to be wound up:

"(a) since about early 1996, or alternatively, 29 July 2003, the Company has had no directors;

(b) since 29 July 2003, Ami and Helen have purported to act as directors, transact business and conduct the day to day affairs of the Company despite not being directors;

(c) no mechanism presently exists for directors to be appointed to the Company;

(d) the current members of the Company have no entitlement to vote at general meeting; and

(e) the power of removal of directors at an AGM cannot be exercised."

91 In their Points of Defence in the present proceeding, Ami, Helen and (purportedly) the Company, pleaded:

"... the plaintiff is precluded from contending that the Company should be wound up on any of the bases set out in paragraph 36(a) and (b) of the Points of Claim by reason of the principle stated in Port of Melbourne Authority v Anshun Pty Limited (1981) 147 CLR 589.

Particulars of Anshun estoppel

(a) By an amended statement of claim filed 2 October 2008 in the 2007 proceedings, the plaintiff sought orders in relation to, among other things, the value of shares issued by the Company: paragraphs 4 and 9 of the relief sought.

(b) The Company was the fifth defendant to the 2007 proceedings. The second and third defendants were, respectively, the first and second defendants to the 2007 proceedings.

(c) In paragraphs 3A, 3C, 3D, 4 and 9 of the relief sought in the 2007 proceedings, the plaintiff sought orders which related to the value of shares in the Company.

(d) In paragraphs 21A-21E and 57A-57C of the amended statement of claim in the earlier proceedings, the plaintiff pleaded facts relating to the value of the shares issued by the Company, including that all shares issued by the Company were entitled to 'participate in any surplus on a notional winding up of' the Company: paragraph 21E.

(e) At the time the plaintiff commenced the 2007 proceedings, she was aware of all of the matters now relied upon in relation to the contentions in paragraphs 36(a) to (d) of the Points of Claim in these proceedings.

(f) Those contentions, together with all of the facts relied upon by the plaintiff in support of those contentions, would have been relevant to the determination of the relief sought in the 2007 proceedings.

(g) In the circumstances, it was unreasonable of the plaintiff not to raise the issues identified in paragraphs 36(a) to (d) of the Points of Claim in the 2007 proceedings and the plaintiff is estopped from asserting them in these proceedings."

92 The primary judge did not uphold the defence based on an Anshun estoppel. His reasons, at [212]-[215] were:

"... the 2007 proceedings seem to have raised only ... issues concerning the purported redemption of shares held by Mrs Weinstock and the question whether they were truly redeemable preference shares. The only claims for relief concerning LWC were claims for a declaration that the shares in question were not preference shares and were accordingly not able to be redeemed by the company, a declaration that the purported redemption of the shares was void and of no effect, an order rectifying the register of members of LWC by reinstating the supposedly redeemed shares and an order for 'compensation'. All these claims were based on the characteristics of the shares themselves.

The principle associated with Port of Melbourne Authority v Anshun Pty Ltd [1981] HCA 45; (1981) 147 CLR 589 is, in essence, that there cannot be raised in later litigation matters that should have been put in issue in earlier proceedings between the same parties. The test is whether the matter sought to be litigated subsequently is 'so relevant' to the matters litigated previously that it was 'unreasonable' not to raise it in the earlier proceeding: Champerslife Pty Ltd v Manojlovski [2010] NSWCA 33; (2010) 75 NSWLR 245 at [4] per Allsop P, at [52] per Giles JA.

I am not satisfied that the question whether LWC should be wound up was so relevant to the matters in issue with respect to that company in the 2007 proceeding that it was unreasonable for Mrs Beck not to have raised it there. Her objective regarding LWC in the 2007 case was to establish that the relevant shares had not been validly redeemed and that the register should be rectified so as to reflect their continuing existence. She succeeded in that part of her case and thus produced certainty as to the state of the company's share capital and the way in which it is held (or, at least, such certainty as exists in the context of a pending appeal from Hamilton AJ's decision). The attainment of that certainty may, in my view, be regarded as a legitimate preliminary to any decision whether or not to institute winding up proceedings in relation to the company.

I am not persuaded that Mrs Beck should, in the relevant sense, have put the question of winding up of LWC in issue in the 2007 proceedings. I therefore do not accept the defendants' submission that Anshun principles would have precluded the making of a winding up order in these proceedings. "

93 Mr Jackson submits that in this course of reasoning in the primary judge posed the wrong question for himself. Mr Jackson submits that the issue was not whether Tami "should, in the relevant sense, have put the question of winding up of LWC in issue in the 2007 proceedings". Rather, he submits, the question of the validity of the directors' appointment should, in the relevant sense, have been put in issue in the proceedings. Mr Jackson submits that whether Ami had been validly appointed as a director was directly relevant to the allegations in the 2007 proceeding that Ami had "wrongfully caused the purported redemption" of the 'C' shares and that he had "neglected to rectify the register".

94 The principles governing Anshun estoppel are not a matter of controversy in this case.

95 In Henderson v Henderson (1843) 3 Hare 100 at 115; 67 ER 313 at 319 Sir James Wigram VC said:

"... where a given matter becomes the subject of litigation in, and of adjudication by, a Court of competent jurisdiction, the Court requires the parties to that litigation to bring forward their whole case, and will not (except under special circumstances) permit the same parties to open the same subject of litigation in respect of [a] matter which might have been brought forward as part of the subject in contest, but which was not brought forward, only because they have, from negligence, inadvertence, or even accident, omitted part of their case. The plea of res judicata applies, except in special cases, not only to points upon which the Court was actually required by the parties to form an opinion and pronounce a judgment, but to every point which properly belonged to the subject of litigation, and which the parties, exercising reasonable diligence, might have brought forward at the time."

96 In Port of Melbourne Authority v Anshun Pty Ltd at 598, Gibbs CJ, Mason and Aickin JJ approved that statement of principle. At 602, their Honours rejected, as going too far, the statement of Lord Kilbrandon in Yat Tung Investment Co Ltd v Dao Heng Bank Ltd [1975] AC 581 at 590 that it was "an abuse of process to raise in subsequent proceedings matters which could and therefore should have been litigated in the earlier proceedings". It was wrong because in that context "could" did not entail "should". Their Honours also, at that page, said that it was "not of great utility" to ask whether "the issue in question was so clearly part of the subject matter of the initial litigation and so clearly could have been raised that it would be an abuse of process to allow a new proceeding." The test that their Honours laid down, at 602, was that this type of estoppel would not arise unless the matter sought to be relied upon in the second action "was so relevant to the subject matter of the first action that it would have been unreasonable not to rely on it."

97 As Allsop P pointed out in Champerslife Pty Ltd v Manojlovski [2010] NSWCA 33; (2010) 75 NSWLR 245 at [3], deciding whether the matter in question was so relevant that it can be said to have been unreasonable not to rely upon it in the first proceeding involves "a value judgment to be made referable to the proper conduct of modern ligation".

98 Mr McHugh submitted, in reliance on Champerslife at [107], that the evidence upon which a court considers whether there is an Anshun estoppel is "restricted to the pleadings in both proceedings and the reasons for judgment in the earlier". For the reason I gave in C G Maloney Pty Ltd v Noon [2011] NSWCA 397 at [63]-[68], I do not accept the accuracy of that proposition. However, as the arguments of both sides on this topic were put, the scope of the admissible evidence for determining whether there is an Anshun estoppel is not a matter of importance.

99 The claim that Tami made in the 2007 proceedings concerning redemption of the 'C' shares was a narrow one involving no disputed issues of fact. It was whether the 'C' shares answered the statutory description of redeemable preference shares. The allegation that she made in para 57D of the Amended Statement of Claim in the 2007 proceedings needs to be read as a whole. Read in that way, the allegation in 57D(f) is nothing more than an allegation that Ami purported to bring about a result (redemption of Hedy's 'C' shares) that it was legally impossible to achieve, in light of the rights that attached to the 'C' shares and the other issued shares in the Company.

100 It well may be that one of the ways in which Tami could have challenged the validity of the redemption of Hedy's 'C' shares was by alleging that the corporate acts that purported to effect that redemption were all invalid because the Company had no properly appointed officers. However, success on that ground would not have solved the problem of whether in principle the shares were capable of redemption. That question of principle is one that would need to be considered even if Ami and Helen could extricate the Company from the Sargasso Sea in which it had become becalmed. The extra evidence and argument that would be needed to allege that the particular corporate act by which the redemption purported to be effected was invalid would (as the present proceedings show) be considerable. Even now, the use to which Tami seeks to put her contention that the Company is without proper governance is to achieve the winding up of the Company, not to attack the validity of the redemption of the 'C' shares.

101 In all these circumstances, I would not uphold the contention that the question of whether Ami was validly appointed as a director was so relevant to the subject matter of the 2007 proceedings that it was unreasonable for Tami not to rely on it.

The Validation Order - Generally

102 The relevant portions of s 1322 Corporations Act are:

"(4) Subject to the following provisions of this section but without limiting the generality of any other provision of this Act, the Court may, on application by any interested person, make all or any of the following orders, either unconditionally or subject to such conditions as the Court imposes:

(a) an order declaring that any act, matter or thing purporting to have been done, or any proceeding purporting to have been instituted or taken, under this Act or in relation to a corporation is not invalid by reason of any contravention of a provision of this Act or a provision of the constitution of a corporation;

...

and may make such consequential or ancillary orders as the Court thinks fit.

...

(6) The Court must not make an order under this section unless it is satisfied:

(a) in the case of an order referred to in paragraph (4)(a):

(i) that the act, matter or thing, or the proceeding, referred to in that paragraph is essentially of a procedural nature;

(ii) that the person or persons concerned in or party to the contravention or failure acted honestly; or

(iii) that it is just and equitable that the order be made; and

...

(c) in every case--that no substantial injustice has been or is likely to be caused to any person."

103 It is common ground (and in any event, in light of the "or" at the end of s 1322(6)(a)(ii), clearly correct) that only one of the paragraphs in 1322(6)(a)(i), (ii) and (iii) need be satisfied as a precondition to the making of an order. It has been so decided in Re Continental Pacific Insurance Co [2002] NSWSC 789 at [14], Re Ausram Resources Ltd [2004] FCA 823 at [19]; Re MLC Ltd [2006] FCA 1357; (2006) 60 ACSR 187 at [10] and Sheahan v Londish [2010] NSWCA 270; (2010) 80 ACSR 337; (2010) 244 FLR 64 at [160]. However, in every case when an order is made the requirements of s 1322(6)(c) must be satisfied. The onus of establishing one of the conditions in s 1322(6)(a), and of establishing the absence of substantial injustice, rests upon the applicant for an order: Australian Hydrocarbons NL v Green at 83; Jordan v Avram (1997) 141 FLR 275 at 281-2.

104 By their interlocutory process Ami, Helen, and purportedly the Company, sought a declaration pursuant to s 1322 Corporations Act that seven particular things were "not invalid" by reason of a "contravention" of the Corporations Act, or the Constitution of the Company. The primary judge identified those seven matters at [135]. He granted relief in relation to only one of them, namely the Purported Appointment. As there is no cross-appeal concerning the primary judge's refusal to grant relief under s 1322 concerning the other six matters, I need not consider them in any detail.

105 The primary judge recorded that Ami and Helen did not rely upon s 1322(2), which is confined in its operation to proceedings under the Corporations Act and to the effect of "procedural irregularity". He held, at [133] that Ami and Helen were each an "interested person" within the meaning of the chapeau of s 1322(4). That finding is not in dispute on this appeal.

106 The relief that the judge granted was:

"2. Declare that the proceedings purporting to have been taken on 30 July 2003 by which Amiram David Weinstock purported to act as a director of L W Furniture Consolidated (Aust) Pty Ltd and in that capacity to appoint Helen Weinstock to be a director of that company is not invalid by reason of the contravention of the provision of the constitution of that company consisting of non-observance of the requirement that such proceeding be taken only by a person in office as a director by virtue of valid appointment or election as such."

107 Tami does not challenge any findings of fact made by the primary judge, save to the extent that his Honour concluded that there was no evidence of prejudice or injustice arising out of the "validation" of the Purported Appointment.

108 Mr McHugh raises three issues by way of challenge to the primary judge's decision under s 1322. His written submissions identify them as:

"(a) Whether the power in s 1322(4)(a) authorises the Court to 'validate' an attempt by a person who is not a director of a company to appoint a second person as director, such that the second person becomes a director de jure.

(b) Whether the underlying basis upon which the primary judge 'validated' the Purported Appointment is correct, namely that a validly appointed board of directors would have the power to issue voting shares and thereby bring an end to the present vacuum in corporate governance.

(c) Whether it was 'just and equitable' within the meaning of s 1322(6)(iii) to 'validate' the Purported Appointment, rather than wind up the Company."

109 I will deal with the first two, and then with a supplementary submission that there has been a denial of natural justice.

Issue 4 - Was the Validation Order of the Type Described in Section 1322(4)(a)?

110 Mr McHugh submitted that there was no power to make a validation order concerning the Purported Appointment, because such an order would not fall within the words of s 1322(4)(a). He submits it would fall outside those words for two separate reasons. The first was that the Purported Appointment is not "any act ... purporting to have been done ... in relation to a corporation ". The second is that there has been no "contravention of ... provision of the constitution" of the Company. Both reasons assumed that the act of Ami in making the Purported Appointment was a total nullity.

111 Mr McHugh's argument proceeded by reference to various of the cases that have considered s 1322(4) and its statutory predecessors. I will now turn to those cases.

112 In North Sydney Brick & Tile Co Ltd v Darvall (1989) 17 NSWLR 327 the Court of Appeal held that the company concerned had power to declare a dividend by a distribution in specie of certain assets held by the company (338). The only question concerned the validity of the resolution that had declared it. The Act and articles required that two different resolutions be passed to authorise the payment of such a dividend but the Company passed only one of the necessary resolutions. Clarke JA said, at 341 that:

"... the failure to include the second resolution, which resulted from the directors' honest acceptance of erroneous legal advice, constituted a failure to comply with those provisions of the Code and the articles which required that a dividend payable from the profits of the company be declared before a distribution could be carried out."

113 He held that "the failure to make provision for the declaration of a dividend in the resolution put to the meeting should be regarded as a relevant failure under s 539(4)".

114 Jordan v Avram concerned a company established as a joint venture vehicle by two families, the Jordans and the Avrams. A contract pursuant to which the joint-venture vehicle was established provided for each family to appoint two directors. The articles of association required there to be at least two directors. The situation came about where there was only one director, Mr Arthur Avram. One of the Jordan family wrote to the auditor and accountant of the company, notifying him of the two members of the Jordan family whom he wished to have appointed as directors. As the sole continuing director Arthur Avram would have had a power under the articles of association to appoint another director to bring the number up to the minimum of two, but he did not exercise it. Rather, he told the accountant that he had no objection to the two Jordan men being appointed, but suggested that their mother "sign the necessary forms". Their mother had previously been a director, but had resigned. One of the Jordan men, who held her power of attorney, signed a form that recorded a purported appointment of the two Jordan men as directors. The form was eventually lodged with ASIC. There was nothing that purported to be any sort of resolution of the company that appointed the two Jordan men. A meeting of the two nominated Jordan men and Arthur Avram that purported to be a meeting of directors was held shortly afterwards, and passed resolutions that were acted upon. Only some weeks later did Arthur Avram question the validity of appointment of the Jordan men.

115 Gillard J made an order validating the appointment of the Jordan men as directors. At 156-157 he gave a careful analysis of the structure of s 1322, and concluded at 157:

"In my opinion s 1322(4)(a) is not confined to procedural irregularities. It covers irregularities, errors or mistakes of a general nature and is expressed in very wide language. It clearly gives power to declare an act which is not in accordance with the articles of association, not invalid. In this regard the change in the wording of the section means that the principles espoused in Omega Estates Pty Ltd v Ganke [1963] NSWR 1416 especially at 1423 that the court could not override the articles of association are no longer good law. In my opinion the scheme of the section makes this quite clear. There are different approaches to what might be described as procedural irregularities and other irregularities. In my view the act under consideration, that is, the purported appointment, is clearly capable of falling within the wide words of s 1322(4)(a) and if thought appropriate the court could declare the appointment not invalid. I am satisfied the court has the jurisdiction, in the present circumstances."

116 Re Centennial Coal Co Ltd [2006] NSWSC 62; (2006) 56 ACSR 698; (2006) 226 ALR 341 concerned an off-market takeover bid. The offeror wished to extend the offer period, but failed to meet a mandatory statutory deadline for the time within which a notice of variation of the offer could be mailed to shareholders in the target who had not already accepted. Barrett J validated the late sending of the notice of variation. He said, at [15]:

"The Court of Appeal held in Winpar Holdings Ltd v Goldfields Kalgoorlie Ltd (2001) 166 FLR 144; 40 ACSR 221; [2001] NSWCA 427 that failure to take the appropriate steps to call a separate meeting of certain shareholders made necessary by a provision of the Corporations Law to the efficacy of a particular type of reduction of capital was a 'contravention' of that provision. There, as here, the company was under no obligation to embark upon the reduction of capital. But, having done so, it was required to proceed in the prescribed way and failure to take any of the prescribed steps was a 'contravention'. In this case, the plaintiff, having embarked on the offer extension process, was required to comply with s 650D(1)(c)(ii) and its failure to do so was a 'contravention' of the Act."

117 Sheahan v Londish concerned three companies. Valofo was a wholly-owned subsidiary of LNQ, which in turn was a wholly-owned subsidiary of Vesudi. A provision in the articles of Association of Vesudi enabled the holders of the majority of issued shares to remove a director and appoint a replacement by a notice under their hands. There was no corresponding provision in the articles of LNQ or of Valofo. Section 249B Corporations Act allowed a one member company to pass a resolution by the member recording it and signing the record. A majority of shareholders of Vesudi signed a notice removing an existing director and appointing a replacement, Mr Sidney Londish. Mr Londish then joined and signing a notice that purported to remove a director of LNQ and replace him with Mr Londish. Mr Londish and a director of LNQ then joined in signing a notice that purported to remove a director of Valofo and replace him with Mr Londish. Mr Londish and a director of Valofo then purported to appoint administrators to Valofo. The litigation concerned the validity of the appointment of the administrators.

118 The majority in the Court of Appeal (Young JA and Lindgren AJA) held that the appointment of Mr Londish as a director of LNQ and of Valofo was invalid. Young JA at [161]-[163] held that there was a "contravention" within the meaning of s 1322(4)(a) "when the company does not infringe the Act, but merely failed to take advantage of a provision of the Act". Lindgren AJA at [233]-[236] said:

"The expression in 1322(4)(a) 'any act, matter or thing purporting to have been done, or any proceeding purporting to have been instituted or undertaken under [the] Act or in relation to a corporation' is of the widest kind. It embraces the purported appointment of the appellants as administrators of Valofo.

As Young JA observes (at [161]-162]), the expression in s 1322(4)(a) 'by reason of contravention of a provision of this Act or a provision of the constitution of a corporation' (my emphasis) has been liberally construed, and the word 'contravention' in the provision has not been confined to its orthodox meaning of 'infringement'.

The appointment by Valofo of the appellants as administrators on 16 July 2009 was invalid because:

· Valofo had not removed Peter and appointed Sidney as a director of Valofo by passing resolutions in conformity with s 249B before the purported instrument of appointment was executed and a resolution of the directors of Valofo was passed, although the soi-disant directors, Sidney and Mr Bowman, apparently presumed that there was an effective removal of Peter and appointment of Sidney upon or before the giving of the notice by LNQ on 26 February 2009;

· LNQ had not removed Peter and appointed Sidney as a director of LNQ by passing resolutions in conformity with s 249B, although the soi-disant directors, Sidney and Mr Bowman, apparently presumed that there was an effective removal of Peter and appointment of Sidney upon or before the giving of the notice by Vesudi on 25 February 2009.

In my opinion these reasons for the invalidity of the appointment by Valofo of the appellants as its administrators fall within the expression 'contravention of the provision of the Act', the provision of the Act being s 249B."

119 Mr McHugh submits that, in various ways, the validation order made in the present case goes further than validation orders made in previous decided cases. For example, he submits that in Jordan v Avram Mr Avram actually approved of the appointment of the two Jordan directors, and had power to appoint them. In both North Sydney Brick & Tile v Darvall and Re Centennial Coal Co, the company had power to pass the necessary resolutions, but did not do so. In Sheahan v Londish it would have been possible for each of LNQ and Valofo, successively, to pass valid resolutions under s 249B to put Mr Londish in office, but they omitted to carry out simple acts that were within their power. By contrast, he submits, in the present case Ami had no power at all to appoint Helen as a director.

120 Mr McHugh's observations concerning those cases are right, but do not dictate the outcome of the present case. When one is applying a statutory power, one construes the power, and applies it to the facts of the case at hand. Previous cases that have applied the section can illustrate its proper scope, but only insofar as they decide that certain types of order are within the scope of the statutory power or identify limits to the scope of the power are they the sort of precedents that should be applied directly. As will appear, the matters to which Mr McHugh points are in my view accidents of the facts of those particular cases, rather than matters that are definitive of the scope of the power under s 1322(4)(a).

121 In support of his submission that there has been no "contravention of ... a provision of the constitution of a corporation", Mr McHugh argues that where a power is exercisable only by a person holding a particular office, and that power is purportedly exercised by a person who does not hold that office and whose appointment to that office cannot be validated, there is no "contravention of the Act or constitution". He submits that such a situation is neither an infringement of, nor the failure to take advantage of a provision of, the Act or constitution (cf Sheahan v Londish at [161]-[162] and [234]-[236].) He submits that the section should be construed to permit the court to "validate" an act of a stranger to the Company only if the appointment of that stranger to the relevant office is itself capable of being validated.

122 In that connection, Mr McHugh points out that one of the six matters concerning which the primary judge refused to grant validation was "the expiry of the terms of office of ... [Ami] as a consequence of [his] having been appointed 'only until' the 31 December 1973 annual general meeting" ([135](c)). The primary judge recognised that it was necessary to identify the "provision of the constitution of" the Company "by reason of" the "contravention" of which the matter in question is (or, perhaps, maybe) "invalid". He said that it was necessary for that process of identification to be gone through:

"since the order under s 1322(4)(a) is one declaring a matter to be 'not invalid by reason of' a 'contravention', so that it is the invalidating effect of the 'contravention' that is displaced or reversed by the order." ([142])

123 The primary judge was unable to identify a "contravention" in the circumstances in which Ami ceased to hold office:

"No provision of the constitution was disobeyed. An attempt to take some course allowed by the constitution did not miscarry because of failure to take a step contemplated by the constitution [Leo] and [Hedy] made appointments under article 69. The appointments took effect in accordance with that article and continued until the end point fixed by the article. There was no 'contravention' when, at that end point, the appointments expired." ([144])

124 Mr McHugh sought to use the primary judge's refusal to validate Ami's appointment as a basis for distinguishing the present case from Australian Continental Resources. That case gave consideration to the application of s 366(3) Companies Ordinance 1962 (ACT), a predecessor of s 1322 Corporations Act. So far as relevant s 366(3) Companies Ordinance provided:

"Without affecting the generality of sub-sections (1) and (2) of this section or of any other provision of this Ordinance, where any omission, defect, error or irregularity (including the absence of a quorum at any meeting of a company or of the directors or creditors of a company, or at a joint meeting of creditors and members of a company) has occurred in the management or administration of a company whereby-

(a) a breach of any of the provisions of this Ordinance has occurred;

(b) there has been default in the observance of the memorandum or articles of the company; or

(c) any proceedings at or in connexion with any meeting of the company or of the directors or creditors of the company or a joint meeting of creditors and members of the company or any assemblage purporting to be such a meeting, have been rendered ineffective, including the failure to make or lodge any declaration of solvency pursuant to section two hundred and fifty-seven of this Ordinance,

the Court

(d) may, either of its own motion or on the application of any interested person, make such order as it thinks fit to rectify, or cause to be rectified or to negative or modify, or cause to be modified, the consequences in law of any such omission, defect, error or irregularity or to validate any act, matter or thing rendered or alleged to have been rendered invalid by or as a result of any such omission, defect, error or irregularity;

(e) shall, before making any such order, satisfy itself that such an order would not do injustice to the company or to any member or creditor thereof;

(f) where any such order is made, may give such ancillary or consequential directions as it thinks fit; and

(g) may determine what notice or summons is to be given to other persons of the intention to make any such application or of the intention to make such an order and whether and how it should be given or served and whether it should be advertised in any newspaper."

125 There is a fundamental respect in which the wording of s 1322(4) Corporations Act differs from that of s 366(3) Companies Ordinance 1962. The structure of the former s 366(3) was to first identify, in its chapeau and in paras (a), (b), (c) and (e) a set of circumstances in which the sub-section could operate, and then identify in paras (d), (f) and (g) various types of orders that the court could make in those circumstances. The only preconditions for the operation of s 1322(4) are that there is an "application by any interested person", and that the requirements of s 1322(6) are met. Once there is an "application by any interested person" the rest of s 1322(4) is concerned with nothing but identification of types of orders that can be made. That difference in structure has the consequence that decisions under s 366(3) are of very limited help in deciding the scope of the power under s 1322(4)(a). However, I will go on to consider the consequences that Mr McHugh submits follow from Australian Continental Resources.

126 In Australian Continental Resources, s 366(3) was invoked concerning the appointment of three directors, Messrs Cowper, Elliott and Ware. Mr Cowper's appointment was invalid because he did not hold the necessary qualification shares at the time of his purported appointment. He was appointed by Mr Macarthur-Stanham (who had ceased to be a director who could validly act as such because he had disposed of his qualification shares) and Mr Wenham. Mr Wenham was undoubtedly a director, and would have had power under an article the equivalent of article 87 in the present case to act by himself to appoint a qualified person to be a director. Messrs Elliott and Ware were purportedly appointed by Messrs Macarthur-Stanham and Cowper, neither of whom was a director at the time. I have earlier discussed at [72]-[82] why the incapacity of Mr Macarthur-Stanham to appoint Messrs Elliott and Ware would be validated by s 119, if Messrs Elliott and Ware had held the necessary qualification shares.

127 Blackburn J made an order under s 366(3) validating the appointment of Messrs Cowper, Elliott and Ware. He held, at 415, that their failure to hold qualification shares was an "error or irregularity", and that the purported appointment of them entailed a "default in observance of the ... articles. He rejected an argument that the purported appointment had not occurred "in the management or administration of a company", because "the persons who committed the error (Messrs Macarthur-Stanham and Cowper) were not even directors; they were in the eyes of the law strangers to the company" (416). His reason for rejecting that argument was, at 416:

"... to put such a construction on the words 'management or administration of a company' would be to deprive the section of much of its usefulness. Unless the words 'management or administration' can be, where necessary, construed as 'purported management or administration', the beneficent effect of the section must be drastically reduced. I can find nothing in the rest of the section or in the Ordinance which suggests that the narrower construction should be adopted."

128 Mr McHugh suggests a critical distinction between the present case and Australian Continental Resources is that in the latter case every invalidity along the way to the final invalidity that was cured under s 366(3) was able to be cured. Similarly, he submits in Sheahan v Londish all the invalidities along the way to the appointment of the administrator were able to be cured.

129 I observe that none of the phrases that were critical in Blackburn J's argument ("error or irregularity", "a default in observance of the ... articles" and "in the management or administration of a company") occurs in s 1322. However, to deal with the substance of Mr McHugh's argument, in my view, there is no justification for imposing a limitation of the kind he submits on the words of s 1322(4)(a). Doing so would sit awkwardly with a significant body of authority (some of it in this Court) concerning the construction of s 1322. More importantly, it would be contrary to the repeated statements of the High Court about the correct way to construe statutes that confer a jurisdiction on a court.

130 There is ample authority that s 1322 is a remedial provision which is to be applied with liberality: North Sydney Brick & Tile Co Ltd v Darvall at 341; NRMA Ltd v Gould (1995) 18 ACSR 290 at 292; Jordan v Avram at 154; Winpar Holdings Ltd v Goldfields Kalgoorlie Ltd [2001] NSWCA 427; (2001) 166 FLR 144; 40 ACSR 221; at [74]; Re Centennial Coal Co Ltd at [15]. However, I recognise that that does not necessarily mean it is to be applied with unbounded liberality.

131 Even if one were approaching the construction of s 1322 without any reliance on previous authority concerning the section itself, there is ample High Court authority that provisions conferring jurisdiction or granting powers to a court are not to be read by making implications or imposing limitations which are not found in the express words: FAI General Insurance Co Ltd v Southern Cross Exploration NL (1988) 165 CLR 268 at 283-284 per Wilson J; at 290 per Gaudron J; Knight v F P Special Assets Ltd (1992) 174 CLR 178 at 185, 205; Patton v Buchanan Borehole Collieries Pty Ltd (1992) 178 CLR 14 at 17; Owners of 'Shin Kobe Maru' v Empire Shipping Co Inc (1994) 181 CLR 404 at 421; David Grant & Co Pty Ltd v Westpac Banking Corporation (1995) 184 CLR 265 at 275-276 per Gummow J; PMT Partners Pty Ltd (in liq) v Australian National Parks and Wildlife Service (1995) 184 CLR 301 at 313, per Brennan CJ, Gaudron and McHugh JJ; Oshlack v Richmond River Council (1998) 193 CLR 72 at 81 per Gaudron and Gummow JJ; Australasian Memory v Brien [2000] HCA 30; (2000) 200 CLR 270 at [17]; Mansfield v Director of Public Prosecutions for Western Australia [2006] HCA 38; (2006) 226 CLR 486 at 492 at [10]

132 Even at the level of the previous case law, a significant obstacle to the success of the argument that the court lacked power to make the validating order is the decision in Nece Pty Ltd v Ritek Incorporation (1997) 24 ACSR 38. It arose from a dispute within a joint-venture company. The company's shares were evenly held by the two joint venturers, and each joint-venturer had appointed one director. In circumstances where relations between the joint-venturers had broken down, the managing director purported to appoint solicitors to act for the company. In a challenge to the retainer of the company's solicitors, Lehane J held that the managing director did not have implied authority by virtue of his position to appoint solicitors to carry out the particular non-routine task for which the managing director had purported to appoint them. Lehane J refused to validate the appointment by an order under s 1322(4). He said, at 45:

"It is correct, I think, to describe the acts, taken without authority (but capable of authorisation if the appropriate procedures under the articles were followed) as 'invalid' for the purposes of the section: compare North Sydney Brick & Tile Co Ltd v Darvall (1989) 17 NSWLR 327 at 341 ; 15 ACLR 706. ....

I accept that, as Clarke JA expressed it in North Sydney Brick & Tile at NSWLR 341:

... [the section] is of a remedial character and should be accorded, therefore, a liberal interpretation. In particular it has been held that the scope and operation of the section should not be subverted or restricted solely because of the effect which its exercise might occasion to third persons: Omega Estates Pty Ltd v Ganke (1962) 80 WN (NSW) 1218 at 1225; [1963] NSWR 1416 at 1427.'"

133 He summarised the relevant principle at 46:

"It is true that cases such as North Sydney Brick & Tile and Omega Estates proceed on the basis that if something is done which has not been properly authorised because, for example, appropriate resolutions have not been passed or because there is in office no validly elected board of directors, the doing of it without authority may be regarded as a contravention, for these purposes, of the articles of association."

134 However, he went on to hold, at 46, that there had been no relevant contravention of the constitution of the company (and had earlier held, at 45, that there was no question of a contravention of the Act):

"The problem in this case, however, is that there is not merely a 'contravention'; there is, it appears to be common ground, deadlock. The reason there is no authority, and no ratification, is that it is not given because one of the parties - particularly, one the directors - whose affirmative vote is needed in order that it should be given is unwilling to give that affirmative vote. It could hardly be said, where lack of authority resulted from a positive decision of the competent authority of a company - ordinarily the board of directors - to refuse it, that an act done in purported exercise of the authority thus refused was invalid by reason of a contravention of the articles. That must equally be true, I think, if authority is sought by way of a proposal to the board but refused. The situation can be no different, in my view, where in the circumstances it is plain that authority, if sought, would be refused."

135 In the present case the primary judge at [151] accepted the correctness of the principle that Lehane J stated, and that I have set out at [133] above. He said, at [152]:

"The absence of the formal status of sole extent director that would have enabled [Ami] to act as he purported to act on 30 July 2003 is of the same quality as nonexistence of validly elected board of directors and therefore within the relevant concept of 'contravention'."

136 Mr McHugh submits that the principle stated by Lehane J was obiter dicta. It is unnecessary to express a view about whether that proposition is correct, because when Lehane J was sitting as a first instance judge, and this court is an appellate court, what matters for us is the persuasiveness of his exposition of the law, not whether it was part of the ratio of the particular case.

137 Mr McHugh also submits that, in any event, the principle stated by Lehane J is wrong. I would be very slow indeed in coming to the conclusion that anything that Lehane J said was wrong. In the present case Lehane J was, as usual, right.

138 The Macquarie Dictionary recognises that the ordinary meaning of "contravene" includes "to come or be in conflict with; go or act counter to; oppose". The etymological root of the word is "contravenire", meaning, "to oppose". The ordinary meaning of "any contravention of a provision of this Act or a provision of the constitution of a corporation" extends to an action that is opposed to, or not in accordance with, a provision of the Act or a provision of the constitution of the corporation.

139 There is nothing in the text of s 1322 that suggests that in the context of that particular section one should not accord "contravention" in s 1322(4) its full meaning. The provisions of s 1322 that precede 1322(4) are concerned with the validation of procedural irregularities. The language shows that the scope of s 1322(4)(a) is wider than that. Of the preconditions to the operation of s 1322(4)(a), s 1322(6)(a)(i), allows as one possibility "that the act, matter or thing, or the preceding referred to in that paragraph is essentially of a procedural nature", but s 1322(6)(a)(ii) and (iii) go on to identify other circumstances in which an order under s 1322(4)(a) can be made. In particular, there is nothing in the wording of s 1322(4) that restricts the court's power under s 1322(4)(a) to being used only in cases where all the steps that have resulted in the invalidity that is in question could themselves be validated. All that is required for there to be a "contravention" of the constitution is that something have happened that is different to what the constitution of the corporation requires. For Ami to appoint Helen as director, when he had no power to do so, is a contravention in this sense.

140 Nor is there anything in the purpose of s 1322 that suggest that one should restrict the usual meaning of "contravention". There are a multitude of ways, impossible to specify in advance, in which the administration of the company might come to transgress legal boundaries, or be different to what the Act or the constitution of the company required, or where the operation of the company in accordance with what would ordinarily be the applicable legal requirements has become either impossible, or commercially undesirable. One of the manifest purposes of s 1322(4)(a) is to permit the court to have a wide discretion, exercised (as s 1322(6)(c) shows) by reference to the justice of the individual case, to excuse a transgression or a departure from the proper course of administration, and to take steps to ensure that the transgression or departure does not thereafter impede the proper administration of the company. The wording of s 1322(4)(a) is wide enough to empower the court to rescue a company from a situation in which its administration has become paralysed.

141 There is nothing in the purpose of the Act, considered as a whole, to show that the language should not be given its full width. Section 1322 is by no means the only section in the Corporations Act that confers a wide discretionary power on the court to deal with departures from the legal requirements for the operation of companies, or to authorise, by reference to the circumstances of the individual case, some departure from the course that the law would otherwise require to be followed concerning the conduct of the affairs of the company. Without being exhaustive, other examples are found in s 249G (power of court to call a meeting of members of the company), s 266(4) (power of court to extend time for lodgement of charge), s 411 (power of court to authorise schemes of arrangement), s 447A (power of the court to modify manner of operation of Part 5.3A), and s 461(1)(d)(e)(f)(g) and (k) (various discretionary grounds for ordering winding up). Further, some provisions of the Act have as their purpose avoiding the destructiveness involved in winding up a business to the extent it is still viable. Section 435A says so explicitly, and it is fairly clear that that is one of the purposes of s 249G and s 411.

142 Mr McHugh's submission is also contrary to NRMA Ltd v Gould (1995) 18 ACSR 290 at 292-293. In NRMA v Gould, Young J (as his Honour them was) recognised: "Normally the word 'contravention' indicates an act or omission which is blameworthy and may lead to civil or criminal consequences". However, he noted that s 1322(4)(c) of the Corporations Law enabled the Court to make:

"an order relieving a person in whole or part from any civil liability in respect of a contravention or failure of a kind referred to in paragraph (a)" (emphasis added).

143 He accepted that reading "contravention" in s 1322(4)(a) in a "very wide sense", "would indeed be in the spirit of the decisions that have been given under the section and its predecessor since Ganke's case and indeed consistent with the philosophy of the Corporations Law set out in s 109H". Section 109H, that his Honour there referred to, provided that in interpreting a provision of the Law a construction that would promote the purpose or object underlying the Law (whether that purpose or object was expressly stated in the Law or not) was to be preferred to a construction that would not promote that purpose or object.

144 Young J held that s 1322(4)(a) enabled him to make an order that validated an election that a company proposed to hold, notwithstanding that three of the candidates were, on the proper construction of the articles, ineligible to stand for election as directors. They were ineligible because the articles required that a candidate be a member of the company at the time of nomination, and the candidates in question had become members of the company only after the time for nominations had closed.

145 Section 1322(4)(c) of the Corporations Law is identical with the present s 1322(4)(c) of the Corporations Act. Though the Corporations Act does not now contain a s 109H, s 5C Corporations Act makes the provisions of the Acts Interpretation Act 1901 (Cth) applicable to the interpretation of the Corporations Act. Section 15AA Acts Interpretation Act does not differ materially from the former s 109H of the Corporations Law. Thus the law has not materially changed since NRMA v Gould was decided.

146 The decision in NRMA v Gould was given on 1 September 1995. The nominations for the election in question had closed on 25 August 1995. As the opening sentence of the judgment makes clear, the decision was given before the election was held. This is of some importance for understanding the significance of the order that Young J made. It is not as though he validated the result of an election in the course of which there had been an irregularity by reason of some ineligible candidates standing. Rather, he validated the nomination of the candidates, notwithstanding that under the articles of Association those nominations were nullities. That is exactly the sort of order that, on Mr McHugh's submission, cannot be made. For the reasons I have earlier given, Young J was right in holding the making of that order was within power. Further, we have not had our attention drawn to any criticism of the decision in the more than 16 years since it was made.

147 Mr McHugh also submitted, though without independent elaboration, that Ami's purported appointment of Helen was not an act that "purported to have been done in relation to the corporation". I do not accept that that is so.

148 The very notion of an act "purporting" to be done is that it is not (or might not be) really done, but that it has the pretence or appearance of being done. Fairly clearly, Ami's attempt to appoint Helen was an act of appointment that purported to be done. His making of the resolution, and his formal recording of it as a company minute looked like steps in the administration of the company. On the face of it, the minute of the resolution looked like a minute of the sort of resolution that a continuing sole director would have been entitled to make.

149 Further, when the Purported Appointment was an act by someone who acted as though he was a director of the company, and purported to be an appointment of another director of the Company, it purported to be done "in relation to" the Company. It is a commonplace of statutory construction that "in relation to" can express any sort of relationship between two subject matters: Law Society of New South Wales v Bruce (1996) 40 NSWLR 77 per Giles CJ Comm D and cases there cited. Though there might sometimes be contextual matters that lead one to read the generality of that expression down, I can find no such contextual matters in the present case.

150 As well, even though Ami did not validly hold office as a director at the time of the Purported Appointment, he was no stranger to the affairs of the Company. He had ceased to hold office on 31 December 1973, but by the time of the Purported Appointment he had been acting as a director over the entire time from his initial appointment on 29 June 1973, ie, a period of over thirty years. During that time, there had been no objection to his acting as though he were a director. It is not suggested that he did not honestly believe that he had the power that he purported to exercise. Indeed, after the Purported Appointment there was no objection for some years to Ami continuing to act as a director, nor to Helen acting as though she were entitled to the office to which Ami had purported to appoint her.

151 Similarly to this case, in NRMA v Gould the candidates were not intermeddling strangers to the affairs of the company. As Young J found at 291-292, two of them were directors of companies which had been longstanding members and the third was a member of a trade union which was a member and had also been a member personally in the past. As his Honour found at 293:

"... each of the three defendants mistakenly thought that they were entitled to stand for the Board of Directors of the company. Each, when it was pointed out to them that they were ineligible, took immediate steps to cure the problem and two of them cured the problem within ten minutes of the deadline. The third regularised the position two working days later."

152 Though there does not seem to have been an issue in NRMA v Gould about whether the nominations were acts that "purported to have been done in relation to the corporation", those facts would assist in being satisfied that the nominations had that characteristic.

153 Mr Jackson pointed out that Ami was within the extended definition of "director" in s 9 of the Corporations Act by virtue of being a person who is not validly appointed as a director, but who acts in the position of a director. While that is true, I have difficulty in seeing how it enters into the construction of s 1322(4). However, as I have held, the fact that Ami had been a de facto director for decades is relevant to concluding that the Purported Appointment was an "act ... purporting to have been ... taken ... in relation to a corporation". For these reasons, I conclude that the primary judge was right in holding that the order he made was the type that fell within the wording of s 1322(4)(a).

Issue 5 - The Validation Order - Power to Issue Voting Shares

154 The primary judge held that validating the appointment of Helen as a director would open the way to a restoration of workable governance mechanisms to the Company, even though the court made no order to remove the invalidity of Ami's continuing in office. He described, at [178]-[180], how the restoration of workable governance would be achieved:

"... Helen Weinstock will be able to act under the combination of article 87 and article 69 to appoint an additional director to bring the number of directors in office up to the quorum of two (which is also the permitted minimum). Indeed, she will no doubt consider herself duty-bound to do so in order that a functioning board may exist. Any director so appointed by Helen Weinstock will hold office free from the limitation on tenure stated in article 69.

Helen Weinstock and the new appointee will be able to exercise all the powers of the board of directors, including the power to manage the business of LWC and to exercise all the powers of the company that are not reserved to the company in general meeting (article 75).

Among the powers thus at the disposal of the board of directors will be the power to issue new shares (article 4), including shares in classes "E" to "N" which carry voting rights. I say nothing about whether it would or might be appropriate for that power to be exercised. The point is that there exists (or, rather, can be brought into existence) a means of changing the present situation in which no member is entitled to vote at a general meeting of the company."

155 Mr McHugh submits that the primary judge was mistaken in deciding that the board of directors would be able to issue voting shares.

156 Clause 3 of the Memorandum of Association of the Company provided:

"The amount of share capital with which the Company proposes to be registered is twenty thousand dollars ($20,000.00) divided into twenty thousand (20,000) shares of One dollar ($1.00) each."

157 Article 3(1) states the manner in which the capital of the Company is divided into classes, while Articles 3(2)-3(5) state the respective rights that attach to the various classes of 'A' to 'D' shares. No special provision states the rights of the various classes of ordinary shares that are part of the authorised capital. Articles 3(6)-3(15) confer on the Company the power "to create and issue" further shares that rank pari passu with shares of the various classes of ordinary shares. Article 4 provides:

"The Shares of the Company for the time being unissued (whether forming part of the original capital or of any increase in capital) shall be under the control of the directors who may allot or otherwise dispose of the same to such persons on such terms and conditions and at such times as the directors think fit ..."

Article 43 confers on the Company the power, by ordinary resolution, to (inter alia):

"Increase the share capital by such sum to be divided into shares of such amount as the resolution shall prescribe."

Article 75 confers on the directors a general power to manage the business of the Company, except insofar as the articles or the Company in general meeting might regulate that power.

158 That group of provisions was cast in language that presupposed principles developed in the nineteenth century, when it became possible to incorporate a company by a process of registration of documents by a government official. The artificial entity so created arose from at least seven (later two) people associating together to become members of the company. The company had, as a result of being incorporated, the power to raise from its members a particular sum of money, the authorised capital of the company. Even before that sum of money was raised, the potential sum of money was itself notionally divided into smaller parts, called "shares", each of which represented an appropriate proportion of the total amount that the company was authorised to raise. One of the documents that were registered, the memorandum of association of the company, was to identify that sum of money and in what manner it was to be divided into shares. It was also to set out the purposes in which that fund of money was to be utilised. Rather confusingly, the word "share" was used to describe both the fractional part of the authorised capital of the company (concerning which the name made sense), and also the source of the set of rights that were initially acquired when someone made a contribution to the capital of the company and received in return an entitlement to various rights against the company and other shareholders. The rights making up the "share", in this second sense, were assignable, subject to any limitations in the articles of association. The articles of association was another of the documents that were registered. It set out some aspects of the basis on which the members would associate together. One matter that was often identified in the articles was the various rights to which a person who held one of the shares would be entitled. The fractional amount of the authorised capital that was attributed to one of the shares that made up the authorised capital was the "par value" of the share. Textbooks and court decisions drew distinctions, not always consistently with each other, between the "creation", "allotment" and "issuing" of shares, but this is not the place to discuss those distinctions. Courts developed a principle whereby a company limited by shares could not issue shares at a discount to par value: Ooregum Gold Mining Co of India Ltd v Roper [1892] AC 125. A statutory exception later permitted a court to approve a company issuing shares at a discount to par in certain circumstances. Aickin J accurately captured the Australian law in his dissenting judgment in Federal Commissioner of Taxation v St Helens Farm (ACT) Pty Ltd (1981) 146 CLR 336 at 427 when he said:

"'unissued shares' do not constitute individual items of property but indicate merely the number of shares which a company may issue without increasing its nominal capital in accordance with the Companies Acts or Ordinances."

159 Some of these conceptual presuppositions on which the memorandum and articles of association of the Company had been drafted were altered when s 1427(1) Company Law Review Act 1998 (Cth) ("CLR Act") came into effect. It provides:

"Any provisions in a company's constitution stating the amount of the company's share capital, and dividing that share capital into shares of a fixed amount, are repealed on commencement."

160 Section 1412 CLR Act defined "commencement" as meaning "the commencement of section 3 of the Company Law Review Act 1998".

161 Mr McHugh submitted that the effect of s 1427(1) is that clause 3 of the Memorandum of Association of the Company is repealed in its entirety, and Article 3(1) is repealed insofar as it identifies or creates an initial but unissued share capital. He submits that in consequence there are no longer any "shares of the Company for the time being unissued", and that hence the directors no longer have power to "allot or otherwise dispose of" the (now non-existent) unissued shares of the Company. It is only these now non-existent shares that Article 4 empowers the directors to issue. He submits that the only way in which new shares can be issued is if the Company in general meeting resolves, under Article 43, to increase the share capital. He accepts that once such a resolution was passed, the directors would have power under Article 4 to issue the shares that were thereby allowed to be issued. However, because of the impossibility of the Company in general meeting passing an ordinary resolution, the situation will not arise where the directors have the power to issue ordinary shares. Thus, he submits, even if Helen were to appoint another director, the general meeting would still be incapable of operating as an organ of corporate governance.

162 I do not accept that submission.

163 The CLR Act should be interpreted as a whole. As well as containing s 1427(1), it also made provision for a new s 254C of the Corporations Act, which stated: "shares of a company have no par value". However, that did not mean that the notion of an amount paid on shares disappeared from the legislation. Section 169(3) required a company that had a share capital to record in its register:

"If the company has a share capital, the register must also show:

(a) the date on which every allotment of shares takes place; and

(b) the number of shares in each allotment; and

(c) the shares held by each member; and

(d) the class of shares; and

(e) the share numbers (if any), or share certificate numbers (if any), of the shares; and

(ea) the amount paid on the shares; and

(eb) whether or not the shares are fully paid; and

(f) the amount unpaid on the shares (if any)."

164 Some exceptions are created by s 169(4) and (5):

"(4) The register does not have to show the amount unpaid on the shares (see paragraph (1)(f)) if:

(a) all of the company's shares were issued before 1 July 1998; and

(b) the register continues to show the par values of the shares as they were immediately before 1 July 1998.

(5) The register does not have to show the amount unpaid on the shares (see paragraph (1)(f)) if:

(a) all of the company's shares were issued before 1 July 1998; and

(b) the company is not a listed company."

165 Those exceptions do not detract from there still being an "amount paid" on shares, and a notion of shares being "fully paid". They demonstrate that the notions of "allotment" and "issuing" of shares have not been made redundant. Section 124 of the Corporations Act, introduced by the CLR Act, provides that a company's powers include power to "issue ... shares" and "grant options over unissued shares".

166 The CLR Act must be construed in a way that gives effect to its purpose, as shown in the language of the statute. There is a distinct oddity in the language of s 1427(1) of the CLR Act in that it says that it "repeals" provisions in documents that are in many respects contracts between private persons, and that are not themselves created by legislation (though they are given part of their legal effectiveness by legislation). The "repeal" that s 1427 effects is a wholesale repeal in what must be thousands of documents that would inevitably not be in a common form, and whose precise terms the legislators could not be taken to know. That makes one think that the "repeal" is not so much a deleting of precise words, but rather a requirement that the provisions of the constitutions referred to be treated as inefficacious in certain ways. So understood, the section has the effect that any provision in the constitution of a company that has the effect in substance of stating (in whatever words) the amount of the capital of the company, or has the effect in substance of dividing the capital into shares that are of a fixed amount, is no longer efficacious. That is not the same as saying that a provision that says that the capital of a company is divided into shares is inefficacious. It is the twin notions of a company having an authorised capital, and that is divided into shares that each have a fractional part of the authorised capital attributed to them as a "par value" that are being removed from the law.

167 It is legitimate, under s 15AB(1) Acts Interpretation Act to use extrinsic material:

"(a) to confirm that the meaning of the provision is the ordinary meaning conveyed by the text of the provision taking into account its context in the Act and the purpose or object underlying the Act; or

(b) to determine the meaning of the provision when:

(i) the provision is ambiguous or obscure; or

(ii) the ordinary meaning conveyed by the text of the provision taking into account its context in the Act and the purpose or object underlying the Act leads to a result that is manifestly absurd or is unreasonable."

168 The Explanatory Memorandum to the Company Law Review Bill 1997 stated:

"11.6 However, the concept of authorised share capital no longer achieves its original goal of allowing a company's creditors to assess the size of the company's business undertaking. There are 3 reasons for this:

(a) a company does not have to issue shares up to the amount of its authorised share capital

(b) a company may finance its activities through debt

(c) a company may increase or decrease the amount of its authorised share capital by ordinary resolution, and without notice to its creditors.

11.7 In light of these considerations, the Law will no longer include the requirement in current s 117(1)(b) that a company limited by shares must include in its constitution a statement indicating the amount of its authorised share capital. Consequently, there will be no need for a process to increase or decrease authorised share capital and current s 193(1)(a) and (e) will be repealed.

11.8 Currently, a company's authorised share capital may be used to prevent the directors from diluting the shareholders' interest in the company or bringing new members into the company without the consent of existing shareholders. This facility may be particularly useful in the case of joint venture companies. However, the same effect can also be achieved by having a constitution which sets a numerical limit on the number of shares that the directors may issue."

169 The reasons for removing the concept of par value were explained in the Explanatory Memorandum:

"11.22 A share is a proportionate interest in the net worth of a company's undertakings. A person trying to gauge the size of a shareholder's investment in a company would need to look beyond the par value of the shareholder's shares, because par value is simply an arbitrary monetary denomination attributed to the shares. Rather, a potential investor would be interested in the proportionate size of the shareholder's actual contribution to the capital of the company. For example, if a shareholder owns 10% of all issued shares in a company, a potential investor would be interested in the current value of those shares (that is, 10% of the current net value of the company's undertakings). The fact that the shares have a par value of, for example, $1 each would give no indication of the current value of the shares.

11.23 Par value may also be misleading to an unsophisticated investor. A share with a par value of $5 being offered for sale at $2 may appear to be a bargain. However, the share might in fact be worth less than $2.

11.24 In its November 1990 report, Shares of no par value and partly-paid shares (Report No 11), the Companies and Securities Law Review Committee canvassed the arguments about par value, and recommended that companies be given the option of issuing no par value shares. However, the Bill does not adopt this approach because a system that permitted both par value and no par value shares would unnecessarily complicate the Law and its administration.

11.25 The Bill will provide that shares no longer have par value (Bill Schedule 5 Item 10 s 254C). This will also apply to shares issued before commencement of Schedule 5 (Bill Schedule 5 item 31 s 1444). These changes will have the effect of preventing companies from issuing par value shares. The Bill will preserve the effect of existing contracts and other instruments, executed before commencement, that refer to the par value of a share (bill Schedule 5 Item 31 s 1445)."

170 These provisions confirm the meaning that I would otherwise derive from the text of the Act, and clarify any obscurity arising from s 1427 being a statutory provision purporting to "repeal" provisions in the constitutions of all the companies in Australia.

171 In Re Yanollee Pty Ltd (in liq) [2006] NSWSC 705; (2006) 24 ACLC 1087 Barrett J considered the effect of s 1427(1) of the Company Law Review Act. He came to the same conclusion as I have reached. He said, at [15]:

"The repeal effected by s 1427(1) caused to become inoperative the provisions in the company's constitution stating its capital and dividing that capital into shares of a fixed amount. Clause 3 of the memorandum and Article 5(1) of the articles of association are both provisions of this kind. But each provision, as well as stating the capital and dividing it into shares of £1/-/-, specified the numbers of shares that were to be "A" class shares, "B" class shares, "C" class shares and ordinary shares. To the extent that the provisions thus classified shares, they went beyond the matters specified in s 1427(1) of the Corporations Law and it seems to me that those additional aspects must be taken to have survived the repeal effected by that section. It follows that the twelve shares issued as "A" class shares continued to be "A" class shares after 1 July 1998. In addition and as I have already said, each must today be regarded as a share on which the sum of $2.00 has been paid."

172 Mr Jackson submits that the effect of s 1427 on Article 3(1) of the Company is to remove the reference to $20,000, and to remove the reference (concerning the shares) to them being of one dollar each. In the result, Article 3(1) is to be treated as amended so that it reads:

"The Capital of the Company is ... divided into twenty thousand (20,000) shares ... including five 'A' 5% Convertible Preference Shares five 'B' Redeemable Preference Shares, 10 'C' Redeemable Preference Shares, 10 'D' Redeemable Preference Shares, 1,997 'E' Class Ordinary Shares, 1,997 'F' Class Ordinary Shares, 1,997 'G' Class Ordinary Shares, 1,997 'H' Class Ordinary Shares, 1,997 'I' Class Ordinary Shares, 1,997 'J' Class Ordinary Shares, 1,997 'K' Class Ordinary Shares, 1,997 'L' Class Ordinary Shares, 1,997 'M' Class Ordinary Shares and 1,997 'N' Class Ordinary Shares."

173 He submits that when that amendment is made to Article 3(1), Article 4 is then construed so that it confers on the directors power to allot or otherwise dispose of however many of the 20,000 shares identified in the rewritten Article 3(1) as have not been already issued.

174 I accept that s 1427 CLR Act has the effect that Article 3(1) should be treated as being re-written in the fashion for which Mr Jackson contends. However, it is just an accident of the drafting of Article 3(1) that it is susceptible to the neat surgery that Mr Jackson has performed upon it.

175 When Article 3.1 is so re-written, Article 4 is construed in the fashion for which Mr Jackson contends. Alternatively, if, as I do not accept, s 1427 has the effect that the whole notion of unissued shares in the Company must disappear, Article 75 would confer on the directors the power to issue shares, including ordinary shares.

176 Thus, I do not accept that the judge was in error in holding that validation of Helen's appointment would open the way to the Company being able, if the directors so decided, to issue ordinary shares.

177 Mr Jackson also submitted that the primary judge's finding that the directors would have power to issue shares was not an essential one for his ultimate refusal of the winding up order. In light of my conclusion concerning the power to issue shares, there is no need to consider that submission.

Issue 6 - Failure to Accord Natural Justice?

178 At the hearing of the appeal, the Appellant was granted leave, without opposition, to file an Amended Notice of Appeal that contended that the primary judge had failed to accord natural justice to the Appellant in three respects:

"(a) failing to indicate to the appellant that his Honour was proposing to make an order pursuant to s 1322(4)(a) to validate the purported appointment of [Helen] as director of the [Company] notwithstanding that the purported appointor, [Ami], was not a director of the [Company];

(b) failing to identify, in order to give the appellant an opportunity to address, the matters on which his Honour relied, or proposed to rely, in making the order on that basis; and

(c) failing to provide the appellant with an opportunity to address, and lead evidence in respect of, the elements of s 1322(4)(a) and s 1322(6) and relevant discretionary matters, on the footing indicated in sub-paragraph (a)."

179 Considering whether that ground should be upheld requires close consideration of the issues and course of procedure in the court below. Ami, Helen and the Company filed an interlocutory process on 10 December 2010. The substantive orders sought in their interlocutory process were:

"1. A declaration that Amiram David Weinstock and Helen Weinstock are validly appointed directors of the [Company].

2. In the alternative, an order declaring that:

(a) the resolution of the [Company] made on 29 June 1973, being:

"that Tamar Beck and Amiram David Weinstock be appointed Directors and they shall hold office until the holding of the next Annual General Meeting of the Company"; and

(b) the matters referred to in paragraphs 13(c), 13(d), 14, 20 and 21 of the Points of Claim filed by the Plaintiff on 28 October 2010,

were not invalid by reason of any contravention of any provision of the Corporations Act 2001 (Cth or the constitution of the [Company]."

180 There were no pleadings or points of claim concerning the interlocutory process.

181 The presently relevant provisions of the Points of Claim giving content to the claimed Order 2(b) in the interlocutory process, were:

"17. As a result of Hedy's loss of capacity in about early 1996, or alternatively from about 29 July 2003:

(a) Hedy's office as director of the Company became vacant;

(b) Leo remained the sole director of the Company.

Particulars

Article 73(d) Articles.

18. On 29 July 2003:

(a) Leo died;

(b) the Company had no remaining directors.

19. Hedy died on 6 July 2004.

20. On or about 30 July 2003 Ami purported to pass a resolution appointing Helen as a director.

Particulars

Minutes of purported meeting of directors held on 30 July 2003

21. The said resolution purporting to appoint Helen as director was void and of no effect by virtue of the fact that Ami is not a director of the Company as pleaded herein."

182 The Defence to those allegations in the Points of Claim was:

"15 In answer to paragraphs 17 and 18 of the Points of Claim, the defendants:

(a) admit that Hedy's office as director of the Company became vacant by no later than 29 July 2003;

(b) admit that Leo died on 29 July 2003;

(c) say that as a consequence, of the matters pleaded in (a) and (b) above, on 29 July 2003, Ami was the only director of the Company; and

(d) otherwise deny the allegations made in paragraphs 17 and 18 of the Points of Claim.

16 The defendants admit paragraph 19 of the Points of Claim.

17 In answer to paragraphs 20 and 21 of the Points of Claim, the defendants:

(a) refer to and repeat paragraph 15 of the Points of Defence above;

(b) say that Ami, in his capacity as director of the Company, appointed Helen as a director of the Company to fill a casual vacancy left by reason of Leo and Hedy's office as directors both becoming vacant by no later than 29 July 2003; and

Particulars

Article 73(d) and Article 69 of the Articles of Association

(c) as a consequence of the matters pleaded above, Helen was validly appointed as a director of the Company; and

(d) otherwise deny the allegations made in paragraphs 20 and 21 of the Points of Claim."

183 There was no reply to that Defence.

184 In my view, as a matter of ordinary language the interlocutory process is asking that every departure from regularity that has been pleaded in paras 13(c), 13(d), 14, 20 and 21 of the Points of Claim should be validated. Thus, the basis for the application of s 1322(4)(a) that the primary judge upheld was within the general words of the interlocutory process. However, on 10 December 2010, the defendants' instructing solicitor swore an affidavit that set out verbatim the relief sought in the interlocutory process, and then said:

"The matters giving rise to the basis for the relief sought by the Defendants in the Interlocutory Process are addressed in paragraphs 9 to 22 of the Points of Claim and paragraphs 7 to 18 of the Points of Defence."

185 As mentioned earlier, 10 December 2010 was the day on which the interlocutory process was filed. Tami would be entitled to rely on this clear statement of the basis on which orders under s 1322 were sought. There was nothing in the identified paragraphs of the Points of Claim and the Points of Defence that flagged that the point on which the Respondent succeeded in the court below would be relied upon. She was entitled to proceed on the basis that no such point would be taken, notwithstanding that it was within the general words of the interlocutory process.

186 The hearing took place on 24 and 25 February 2011. In accordance with the usual procedure, each side prepared and served, in advance of the hearing, an outline of submissions.

187 The written submissions of Tami's counsel (who did not appear for her in this Court) were dated 9 February 2011. They were to the effect that the Company was in a state of corporate paralysis because there were no validly appointed directors, and it was impossible for a resolution to be passed at a general meeting. Even worse, according to the submissions, Ami and Helen were continuing to act as though they were directors, and there was no mechanism for their removal. For those reasons, winding up was sought. Nothing was said in them about s 1322.

188 The written submissions filed for Ami and Helen (also, purportedly, the Company) were dated 18 February 2011. The submission was made ([6]) that Tami and Ami were validly appointed as directors in 1973, and that the subsequent appointment of Helen was also valid.

189 One of the issues that the defendants identified in their written submissions was ([18](a)(iii)):

"if, for any reason, the appointment of Ami and Helen, or the re-election of Ami as directors of LWC was invalid, should that appointment be cured by way of relief under s 1322 of the Act?"

190 The defendants submitted, at [24]:

"On the case put forward by both parties, the validity of Helen's appointment depends upon the validity of Ami's appointment. That is, if Ami was a current and validly appointed director of LWC at the time he passed the resolution to appoint Helen as a director, there can be no doubt that such appointment was effective."

The submissions went on to argue that Ami had been validly appointed as a director on 29 June 1973. They then, in the alternative, at [35]-[37] argued for an order under s 1322(4)(a) declaring that the resolution of 29 June 1973 is not invalid.

191 Next, at [38]-[55] the written submissions argued that Ami had been validly reelected as a director at the AGMs held in 1973 and thereafter. In the alternative, at [56]-[57] they sought an order under s 1322(4)(a) "declaring that Tami and Ami were re-elected as directors at the AGMs".

192 The submissions then turned to the appointment of Helen as a director. I reproduce the totality of the submissions on that topic:

"58. Ami purported to appoint his wife, Helen, as a director of LWC on 30 June 2003 in his capacity as a director of LWC in accordance with Article 69. There is no dispute between the parties that as at that date, neither Leo or Hedy remained in office as director (by reason of Leo's death the prior day and Hedy's mental incapacity). Accordingly, the appointment of Helen as a director was valid if Ami was a director on that day.

59. For the reasons discussed above, the Defendants submit that Ami was a director of LWC on 30 June 2003 and consequently the resolution to appoint Helen as a director made on 30 June 2003 was valid and effective."

Thus, the written submissions said nothing about seeking relief under s 1322 to validate Helen's appointment.

193 At the hearing, the oral submissions of counsel who then appeared for the defendants were completed on 25 February. The defendants' counsel said nothing at all about s 1322 up to the moment when he said: "They are our submissions". There then transpired:

"HIS HONOUR: In reply, Mr [counsel for plaintiffs]?

[COUNSEL FOR PLAINTIFF] Yes, your Honour. I'm just unsure, in light of what has been put orally, whether there is still an application under section 1322.

[COUNSEL FOR DEFENDANT] We rely on our written submissions so far as that is concerned."

194 Counsel for the plaintiff then began his address in reply. In his address in reply counsel for the plaintiff made submissions relating to s 1322 that extended over about three pages of the transcript (Black 48-51). Those submissions dealt with case law concerning s 1322, without any detailed reference to the facts of the instant case, or how s 1322 was to be deployed in the instant case. Perhaps the only exception to that is when he said:

"In a sense, one of the difficulties in debating section 1322, your Honour has a variety of possible conclusions that might be reached in relation to the various resolutions. But if what your Honour does conclude is that there was a purported meeting of the members, and the members didn't have power to appoint, then we would say one can't use sections like section 1322 to overcome that fundamental deficiency, namely, the body not having power to appoint purporting so to act. It's not a mere procedural irregularity and it's incapable of being cured, we would submit, under section 1322."

However, that relates to the 29 June 1973 meeting ([33] above), that the judge ultimately held was an effective appointment of Ami and Tami as directors, without any need for a validating order.

195 On the second day of the hearing, counsel for the plaintiff continued his address in reply. He spoke by reference to a newly prepared set of written submissions in reply. As he explained, those submissions replicated:

"... in summary form, submissions we put yesterday about section 1322 and can I just ask your Honour to go to paragraphs 13 to 15 in the reply submissions which really attempt to summarise the thrust of what we were putting yesterday.

Can I just say this before going to those paragraphs that, when one looks at the interlocutory process, it is a little difficult to work out precisely what is asserted to be the thing and, in relation to that thing, what is really asserted to be the relevant contravention."

196 Counsel for the plaintiff then went through various of the paragraphs of the Points of Claim in relation to which validation was sought. He said:

"Paragraphs 20 and 21 of the points of claim are also identified and those paragraphs relate to the purported resolution of Ami Weinstock as a director appointing his wife as an additional director or other director on 30 July 2003, where the complaint about that is that he wasn't a director.

So, we assume the thing sought to be validated is a resolution of Ami. I guess the contravention is the fact that he did something that he couldn't do because he wasn't a director. We don't understand how that could possibly be a section 1322 application either.

With that kind of introductory statement about our current confusion about precisely how the application is really being advanced, can I just point out that paragraphs 13 through 15 were sought to describe, in fairly general terms, what the problems are with attempted resort to this section."

Counsel for the plaintiff then went through various of the alleged contraventions of the Act or constitution that were dealt with in paras 22-25 of the written submissions. However, no oral submission was made about the possible application of s 1322 to Ami's purported resolution of 30 July 2003.

197 Mr Jackson drew our attention to a portion of the written submissions in reply that Tami's counsel had made available on 25 February 2011. The portions that Mr Jackson referred to are:

"10. Paragraphs 35-37. Section 1322 of the Corporations Act, 2001 has no application to the present case.

11. At the outset, it is necessary to identify what the section is being applied to. That involves consideration of, inter alia:-

(a) Where there is a 'procedural irregularity' within the meaning of section 1322(2);

(b) What is the thing or proceedings 'purporting' to have been done/taken for the purposes of section 1322(4);

(c) What is the 'contravention' of the Act or constitution that would otherwise invalidate the thing or proceeding for the purposes of section 1322(4)?

12. The interlocutory process seeking relief under section 1322 is unclear. It seeks orders that appear to be limited to relief under section 1322(4) only. The relief sought is principally that certain identified resolutions 'were not invalid by reason of any contravention of any provisions of the Corporations Act 2001 (Cth) or the constitution of the First Defendant'. Curiously it also seeks a similar order in respect of the absence of any resolution pleaded at Points of Claim paragraph 14.

13. Section 1322(4) cannot apply to validate the resolutions as members resolutions. The absence of voting power to pass the resolutions was not a 'contravention'.

14. Section 1322(4) cannot apply to validate the resolutions as directors resolutions as the resolutions did not 'purport' to be directors resolutions.

15. Section 1322(4) cannot apply to validate the failure to pass a resolution. There is no relevant 'thing' or 'proceeding'.

16. To the extent that Section 1322(2) is relied upon, there is no relevant 'procedural irregularity' within the meaning of that subsection. The resolution purportedly appointing Ami and Tami as directors was not 'essentially of a procedural nature' within the meaning of s 1322.

17. In Cordiant Communications (Aust) Pty Limited v Communications Group Holdings Pty Ltd (2005) 55 ACSR 185 Palmer J held:

"[103]...I think that the following general proposition may be formulated for the purposes of the application of CA s 1322:

what is a 'procedural irregularity' will be ascertained by first determining what is 'the thing to be done' which the procedure is to regulate;

if there is an irregularity which changes the substance of 'the thing to be done', the irregularity will be substantive;

if the irregularity merely departs from the prescribed manner in which the thing is to be done without changing the substance of the thing, the irregularity is procedural.'

18. Applying the above formula to the present case yields the following:

The relevant 'thing to be done' for present purposes was the re-election/appointment of directors by either:-

The members, by way of re-election; or

The board, by way of appointment;

If the 'thing to be done' was re-election by the members, there was no voting power - a matter being upon substantive rights, not mere procedural irregularity.

If the 'thing to be done' was the appointment by the board and this was invalidly done because the members of the board met as shareholders, this is not a mere procedural irregularity either. It would be an instance of one organ of corporate power purporting to exercise a power expressly reserved for another organ. Accordingly, the irregularity would be substantive.

The present case is not just a departure from prescribed manner of doing the thing, what has been done goes to the very substance of the thing complained of.

19. The appointment of directors is clearly substantive and not merely procedural: see Sheahan v Londish (2010) 80 ACSR 337 at [144]-[148]. See also Andrews v Queensland Racing Ltd (2009) 74 ACSR 538 (at [84]-[86]) where the Court held that irregularities going to governance infringed substantive rights and were not merely procedural.

20. For an example of an application of Palmer J's formulation see Onefone Australia Pty Ltd v One.Tel Ltd (2010) 80 ACSR 11 at [8]-[11] and [17]-[18]. This case reinforces the submission that section 1322(4) is not available here to cure any problems with the meeting as directors meetings because the relevant meetings here were only purported shareholders meetings. None of the meeting[s] were purported directors meetings - they were meetings of Company members and only Company members.

21. Accordingly, no question of 'irregularity' [s 1322(2)] or 'contravention' [s 1322(6)(a)(ii)] arises. Rather, what has occurred is a question of lack of power of the general meeting to appoint directors in circumstance where the members had no entitlement to vote.

22. In any case, even if the Court was minded to grant the relief sought such relief would be futile. This is because Tami and Ami did not properly 'retire' within the meaning of Article 66. The resolutions, if valid, would accordingly have no operative effect.

23. Even if section 1322 was applied, its application must cease by no later than the AGM held on 30 December 1990. There was no resolution for re-election passed at that meeting. Under the terms of the previous resolutions (if operative as directors resolutions) office was only held to the next AGM [Article 69]. Accordingly, Tami and Ami ceased to be directors no later than at this meeting. There was no 'thing' or 'proceeding' at this meeting that, if validated, would have the effect of changing this.

24. At the next AGM at which a resolution about directors was passed it was resolved that 'the retiring directors who retire in accordance with the Articles of Association, be re-elected directors...'. Since Tami and Ami had ceased to be directors by no later than the AGM of 30 December 1990, this resolution (even if effective as a directors resolution) did no[t] appoint them as casual or additional directors.

25. During the lifetimes of the only continuing directors - Leo and Hedy - the only resolutions passed at AGMs about directors were in similar terms and did not re-appoint Tami or Ami."

198 It is apparent that those paragraphs are dealing with a submission that an order should be made under s 1322(4) validating the resolution of 29 June 1973, and subsequent purported resolutions (or perhaps also deemed resolutions) to appoint Tami or Ami as directors. They are not dealing with any suggestion that the Purported Appointment of Helen be validated.

199 Because of the lateness with which the written submission in reply had been produced, counsel for the defendants were permitted to address orally concerning it. Junior counsel for the defendants said:

"The only other point, your Honour, that I would say anything about is the section 1322 point. Apart from relying on the written submissions, I just draw attention again to something in the transcript that our learned friends said yesterday and that is at page 50.

At line 29 our learned friends say: 'In a sense, one of the difficulties...to the various resolutions.' My learned friend characterises those conclusions as all being the thing that was required to be done and it wasn't done, but, of course, as the plaintiff accepts and as the plaintiff must accept, it depends largely on the way your Honour characterises the defaults that the plaintiff has pointed to and it is for that reason that the 1322 application is made. I say no more about it than that, your Honour."

The passage of the transcript to which he referred is the passage I have set out at [194].

200 Thus, consistently with the affidavit of 10 December 2010, the basis on which the defendants in the court below put their claim for a s 1322 order in submissions did not extend to the basis that the judge ultimately upheld. Even though at one point counsel for the plaintiff in the court below wondered aloud how a s 1322 order could be made concerning the Purported Appointment, the final address of junior counsel for the defendants did not attempt to embrace that as an issue. In all these circumstances it could not be said that the issue had been litigated in the court below.

201 But what is the consequence? If all the Appellant had lost was the opportunity to address argument concerning whether it was just and equitable to validate the Purported Appointment, and whether any substantial injustice had been or was likely to be caused to any person, that omission could be cured by the making of submissions in this Court if all the relevant evidence were before this Court. However, Mr McHugh submits that in addition the Appellant has lost the opportunity to lead evidence on the topic, and to make submissions concerning that expanded body of evidence.

202 As Mr Jackson points out, Tami had filed nearly all of her evidence in chief months before the hearing. However, that evidence in chief was the evidence on which she sought to rely in support of the winding up application. Though it had all (apart from one formal affidavit of publication and notification to ASIC) been filed by the end of October 2010, the substantive evidence of the Respondents in opposition to that claim, and in support of their interlocutory process, was not filed until 14 January 2011, ie after the affidavit of 10 December 2010 had restricted the scope of the s 1322 claim.

203 In all these circumstances, Tami has in my view lost a realistic opportunity to file evidence that went to the question of whether the s 1322 order that was actually made should made, and to make submissions concerning that expanded body of evidence.

204 Mr McHugh does not submit that the Respondents are forever shut out from litigating a claim in which they seek a s 1322 order of the kind that the primary judge made. What he seeks is that the matter be remitted, so that the question of whether such an order should be made can be litigated. In light of the elevation of the primary judge to the Court of Appeal, the order that Mr McHugh seeks is that it be remitted to the primary judge or such other judge as the Chief Judge in Equity might decide. If the matter is to be remitted at all, Mr Jackson does not oppose that type of order. In the circumstances I have set out, that is an appropriate order to make.

205 The making of the s 1322 order cut the ground from under the way in which Tami put her claim for a winding up order. Thus, remittal should also examine whether, in the circumstances as they are when a fresh decision has been made about whether s 1322 order should be made, the Company should be wound up.

Other Matters

206 Submissions were made to us concerning a number of topics that I have not so far dealt with. They are:

(a) whether the judge should have found that it was just and equitable to make an order validating the Purported Appointment;

(b) whether the judge was right in finding that no substantial injustice has been or is likely to be caused to any person as a consequence of making an order validating the Purported Appointment; and

(c) whether in any event, the court should in the exercise of its discretion decline to make a winding up order.

207 As it will be necessary for the matter to be remitted, and at that remitted hearing the evidence might change, it is not appropriate for this Court to express any view about whether any of those evaluative judgments should be made. Of the legal matters relevant to these topics that were debated, whether it is just and equitable that the order be made permits the court to take into account not only circumstances in existence at the time the act being validated took place, but also circumstances in existence at the time the order is made, and at least some consequences of the making of the order. Similarly, whether substantial injustice "is likely to be caused to any person" involves the court considering the likely future consequences of the making of an order. There are no other discrete legal points that emerge from the submissions on these topics, and that it would be appropriate to decide at this stage.

Costs

208 As every issue raised by the cross-appeal failed, the ordinary order would be that that cross-appeal be dismissed with costs. However, there is reason to depart from the usual position that costs follow the event if making such an order will unduly complicate an assessment of costs. This is, in my view, such a case.

209 While the appeal has succeeded, some of the contentions raised in it, concerning whether the Court had power to make an order of the type it actually made under s 1322(4)(a), and whether validation of Helen's appointment would put the Company into a situation where it was able to issue voting shares, failed. While those issues were not dominant, they were separable: James v Surf Road Nominees Pty Ltd (No 2) [2005] NSWCA 296; Elite Protective Personnel Pty Ltd v Salmon (No 2) [2007] NSWCA 373. If a separate order were to be made concerning the costs of the appeal, the failure of the Appellant concerning those issues should result in some moderation of the costs order concerning the appeal to which she would otherwise be entitled.

210 To facilitate the process of assessment, it would be desirable to make an overall costs order concerning the costs of the appeal and the cross-appeal. In light of the matters that I have mentioned, I would order the Respondents to pay 80% of the combined costs of the Appellant of the appeal and of the cross-appeal.

211 As the appeal has succeeded, the Respondents would ordinarily be entitled to an indemnity certificate under the Suitors Fund Act 1951 concerning the costs of the appeal. For the purpose of fixing the amount to which that indemnity can attach, it is necessary to identify what are the costs of the appeal that has succeeded, and that the Respondents have been ordered to pay. I would assess that amount as being 50% of the combined costs of the Appellant of the appeal and of the cross-appeal.

212 While there is a common practice that when a new trial is ordered, the costs of the first trial are ordered to follow the event in the second trial, this does not detract from the obligation of the court to exercise its discretion concerning costs in each case by reference to the facts of that particular case: Monie v Commonwealth of Australia (No 2) [2008] NSWCA 15 at [54]-[61] and cases there cited. In the present case, the amounts at stake are very large, and the parties have so far shown no lack of willingness to litigate. Thus, I doubt that there is a realistic risk that making an order that the costs of the first trial follow the event of the second trial would inhibit the second trial from occurring. I see no reason to depart from the usual practice whereby the costs of the first trial should follow the event in the second trial.

Bona Vacantia

213 One matter that the primary judge treated as relevant to his conclusion that no winding up order should be made was that if no ordinary shares were to be issued, the surplus assets, beyond the par value of the various 'A', 'C' and 'D' shares, would be divisible amongst the holders of those preference shares, and would not go to the Crown as bona vacantia. Unsurprisingly, neither the Appellant nor the Respondents supported the submission that the surplus assets would go to the Crown. However, the judge's conclusion was reached without there being any contender for the proposition that the Crown would take the surplus as bona vacantia. At the start of the hearing of the appeal the Court raised the question of whether the Crown should be a party to the appeal. Mr Jackson pointed out that there might also be a question of whether, if the Crown were to take as bona vacantia, it would be the Crown in right of the State, or the Crown in right of the Commonwealth. As the question only arose on the day of the hearing, we permitted the hearing of the appeal to proceed on the basis that the Crown would not be bound by the eventual outcome. Now that the matter is to be remitted, the question of whether the Crown (and if so, which Crown, or both Crowns) should be a party to the litigation can be dealt with in the course of pre-trial directions. If it were party to the litigation, that would not compel it to make submissions if it did not wish to.

Order

214 I propose the following orders:

(1) Appeal allowed.

(2) Orders 2 and 3 in the court below be set aside.

(3) Remit the matter to the primary judge or such other judge as the Chief Judge in Equity might decide to determine whether an order should be made under s 1322(4)(a) Corporations Act validating the Purported Appointment, and whether the Company should be wound up.

(4) Cross-Appeal dismissed.

(5) Respondents to pay 80% of the combined costs of the Appellant of the appeal and cross-appeal.

(6) Costs of the first trial to follow the event of the second trial.

(7) Respondents to have a certificate under the Suitors Fund Act 1951 concerning those costs of the Appellant of the appeal that they have been ordered to pay, which are assessed as being 50% of the combined costs of the Appellant of the appeal and the cross-appeal.

********

APPENDIX

Article 3:

(1) The Capital of the Company is Twenty thousand dollars ($20,000.00) divided into twenty thousand (20,000) shares of One dollar ($1.00) each including 5 'A' 5% Convertible Preference Shares, 5 'B' Redeemable Preference Shares, 10 'C' Redeemable Preference Shares, 10 'D' Redeemable Preference Shares, 1,997 'E' Class Ordinary Shares, 1,997 'F' Class Ordinary Shares, 1,997 'G' Class Ordinary Shares, 1,997 'H' Class Ordinary Shares, 1,997 'I' Class Ordinary Shares, 1,997 'J' Class Ordinary Shares, 1,997 'K' Class Ordinary Shares, 1,997 'L' Class Ordinary Shares, 1,997 'M' Class Ordinary Shares and 1,997 'N' Class Ordinary Shares.

(2) The rights privileges and conditions attached to the said 5 'A' 5% Convertible Preference Shares are as follows:-

(a) The said 'A' 5% Convertible Preference Shares shall not confer any right to vote at any general meeting of the Company but the holders thereof shall be entitled to notice of and to attend any general meeting of the Company.

(b) The said 'A' 5% Convertible Preference Shares shall carry the right to a fixed cumulative preferential dividend at the rate of 5% per annum on the capital paid up thereon respectively in priority to all other shares in the Company.

(c) The said 'A' 5% Convertible Preference Shares shall rank

(i) in a winding up both as regards return of capital and dividend accrued up to the commencement of the winding up and not declared, and

(ii) in a reduction of capital as regards return of capital

in priority to all other shares in the Company.

(d) The said 'A' 5% Convertible Preference Shares shall not carry the right to any further participation in surplus assets or profits.

(e) Until the death of LEO AIRE WEINSTOCK or until he shall cease to be the registered holder of at least four of the said 'A' 5% Convertible Preference Shares (whichever shall first happen) the said LEO AIRE WEINSTOCK may by notice in writing left at the registered office of the Company elect to convert the 5 'A' 5% Convertible Preference Shares into 5 'A' 5% Preference Shares having attached thereto the following right privileges and conditions viz:-

(i) Until the death of the said LEO AIRE WEINSTOCK or until he shall cease to be the registered holder of at least four of the said 'A' 5% Preference Shares (whichever shall first happen) the said 'A' 5% Preference Shares shall be the only shares in the capital of the Company which shall confer the right to vote at any general meeting of the Company.

(ii) Except as hereinbefore provided the said 'A' 5% Preference Shares shall not confer any right to vote at any general meeting of the Company but the holders thereof shall be entitled to notice of and to attend any general meeting of the Company.

(iii) The said 'A' 5% Preference Shares shall carry the right to a fixed cumulative preferential dividend at the rate of 5% per annum on the capital paid up thereon respectively in priority to all other shares in the Company.

(iv) The said 'A' 5% Preference Shares shall rank

(a) in a winding up both as regards return of capital and dividend accrued up to the commencement of the winding up and not declared, and

(b) in a reduction of capital as regards return of capital

in priority to all others shares in the Company.

(v) The said 'A' 5% Preference Shares shall not carry the right to any further participation in surplus assets of profits.

and the said 'A' 5% Convertible Preference Shares shall thereupon become 'A' 5% Preference Shares as aforesaid.

(3) The rights privileges and conditions attached to the said 5 'B' Redeemable Preference Shares are as follows:-

(a) If upon the death of the said LEO AIRE WEINSTOCK or upon his ceasing during his lifetime to be the registered holder of at least four of the said 'A' 5% Convertible Preference Shares or 'A' 5% Preference Shares HEDY JADWIGA WEINSTOCK (wife of the said LEO AIRE WEINSTOCK) shall be living and shall be the registered holder of at least four of the said 'B' Redeemable Preference Shares then from and after the death of the said LEO AIRE WEINSTOCK or the date of his ceasing to be the registered holder of at least four of the said 'A' 5% Convertible Preference Shares or 'A' 5% Preference Shares (whichever shall first happen) and until the death of the said HEDY JADWIGA WEINSTOCK or until she shall cease to be the registered holder of at least four of the said 'B' Redeemable Preference Shares (whichever shall first happen) the said 'B' Redeemable Preference Shares shall be the only shares in the capital of the Company which shall confer the right to vote at any general meeting of the Company.

(b) Except as hereinbefore provided the said 'B' Redeemable Preference Shares shall not confer any right to vote at any general meeting of the Company but the holders thereof shall be entitled to notice of and to attend any general meeting of the Company.

(c) The said 'B' Redeemable Preference Shares shall carry the right to a fixed cumulative preferential dividend at the rate of 5% per annum on the capital paid up thereon respectively and shall rank for dividend pari passu with the said 'A' 5% Preference Shares and subject thereto in priority to all other shares in the Company.

(d) The said 'B' Redeemable Preference Shares shall rank in a winding up and in a reduction of capital both as regards return of capital and dividend accrued but not declared pari passu with the said 'A' 5% Preference Shares and subject thereto in priority to all other shares in the Company.

(e) The said 'B' Redeemable Preference Shares shall not carry the right to any further participation in surplus profits or assets.

(f) Subject to the provisions of section 61 of the Act and subject to the Company having given to LEO AIRE WEINSTOCK seven (7) days notice in writing of its intention to exercise such option the said 'B' Redeemable Preference Shares shall at the option of the Company be liable to be redeemed at par at any time prior to whichever is the earlier of

(i) 30th June, 2016, or

(ii) the date upon which the said LEO AIRE WEINSTOCK shall die or cease during his lifetime to be the registered holder of at least four of the said 'A' 5% Convertible Preference Shares or 'A' 5% Preference Shares (whichever shall first happen).

Any such redemption shall be effected by notice in writing to the holders at their respective registered addresses and each notice shall be accompanied by the Company's cheque or by a bank cheque bank draft or money order for the amount payable to the holder to whom the notice is sent.

(4) The rights privileges and conditions attached to the said 10 'C' Redeemable Preference Shares are as follows:-

(a) The said 'C' Redeemable Preference Shares shall not confer any right to vote at any general meeting of the Company but the holder thereof shall be entitled to notices of and to attend general meetings of the Company.

(b) The said 'C' Redeemable Preference Shares shall rank as regards return of capital in a winding up and in a reduction of capital next after any 'A' 5% Convertible Preference Shares or 'A' 5% Preference Shares and any 'B' Redeemable Preference Shares issued in the capital of the Company and subject thereto (but pari passu with any 'D' Redeemable Preference Shares) in priority to all other shares in the capital of the Company.

(c) Subject to the provisions of section 61 of the Act the said 'C' Redeemable Preference Shares shall at the option of the Company be liable to be redeemed at par on or before 30th June 2016 by notice in writing to the holders at their respective registered addresses and each such notice shall be accompanied by the Company's cheque or by a bank cheque bank draft or money order for the amount payable to the holder to whom the notice is sent.

(d) Notwithstanding anything hereinbefore contained the said 'C' Redeemable Preference Shares or the number thereof then issued and unredeemed shall be redeemed by the Company upon the death of the holder thereof and in the event of redemption in consequence of the death of the holder payment of the amount required for such redemption to the auditor for the time being of the Company on trust for such holder's personal representatives shall be deemed payment to such holder's personal representatives and such payment to the said auditor shall be a full and sufficient discharge to the Company for such payment and shall relieve the Company and its directors from all liability to see to the application of the moneys so paid.

(e) The said 'C' Redeemable Preference Shares shall confer on the holders thereof the right to receive such dividends as may be declared thereon pursuant to Article 101 hereof and subject to the provisions of sub-clause (3) of that Article shall rank as regards such dividends pari passu with the Ordinary Shares in the Company. Such dividends (if any) shall be non-cumulative.

(f) The said 'C' Redeemable Preference Shares shall not carry the right to any further participation in surplus profits or assets.

(5) The rights privileges and conditions attached to the said 10 'D' Redeemable Preference Shares are as follows:-

(a) The said 'D' Redeemable Preference Shares shall not confer any right to vote at any general meeting of the Company but the holder thereof shall be entitled to notices of and to attend general meetings of the Company.

(b) The said 'D' Redeemable Preference Shares shall rank as regards return of capital in a winding up and in a reduction of capital next after any 'A' 5% Convertible Preference Shares or 'A' 5% Preference Shares and any 'B' Redeemable Preference Shares issued in the capital of the Company and subject thereto (pari passu with any 'C' Redeemable Preference Shares) in priority to all other shares in the capital of the Company.

(c) Subject to the provisions of section 61 of the Act the said 'D' Redeemable Preference Shares shall at the option of the Company be liable to be redeemed at par on or before 30th June 2016 by notice in writing to the holders at their respective registered addresses and each such notice shall be accompanied by the Company's cheque or by a bank cheque bank draft or money order for the amount payable to the holder to whom the notice is sent.

(d) Notwithstanding anything hereinbefore contained the said 'D' Redeemable Preference Shares or the number thereof then issued and unredeemed shall be redeemed by the Company upon the death of the holder thereof and in the event of redemption in consequence of the death of the holder payment of the amount required for such redemption to the auditor for the time being of the Company on trust for such holder's personal representatives shall be deemed payment to such holder's personal representatives and such payment to the said auditor shall be a full and sufficient discharge to the Company for such payment and shall relieve the Company and its directors from all liability to see to the application of the moneys so paid.

(e) The said 'D' Redeemable Preference Shares shall confer on the holders thereof the right to receive such dividends as may be declared thereon pursuant to Article 101 hereof and subject to the provisions of sub-clause (3) of that Article shall rank as regards such dividends pari passu with the Ordinary Shares in the Company. Such dividends (if any) shall be non-cumulative.

(f) The said 'D' Redeemable Preference Shares shall not carry the right to any further participation in surplus profits or assets.

(6) The Company shall be at liberty from time to time to create and issue further shares ranking in all respects pari passu with the said 1,997 Class 'E' Ordinary Shares.

(7) The Company shall be at liberty from time to time to create and issue further shares ranking in all respects pari passu with the said 1,997 Class 'F' Ordinary Shares.

(8) The Company shall be at liberty from time to time to create and issue further shares ranking in all respects pari passu with the said 1,997 Class 'G' Ordinary Shares.

(9) The Company shall be at liberty from time to time to create and issue further shares ranking in all respects pari passu with the said 1,997 Class 'H' Ordinary Shares.

(10) The Company shall be at liberty from time to time to create and issue further shares ranking in all respects pari passu with the said 1,997 Class 'I' Ordinary Shares.

(11) The Company shall be at liberty from time to time to create and issue further shares ranking in all respects pari passu with the said 1,997 Class 'J' Ordinary Shares.

(12) The Company shall be at liberty from time to time to create and issue further shares ranking in all respects pari passu with the said 1,997 Class 'K' Ordinary Shares.

(13) The Company shall be at liberty from time to time to create and issue further shares ranking in all respects pari passu with the said 1,997 Class 'L' Ordinary Shares.

(14) The Company shall be at liberty from time to time to create and issue further shares ranking in all respects pari passu with the said 1,997 Class 'M' Ordinary Shares.

(15) The Company shall be at liberty from time to time to create and issue further shares ranking in all respects pari passu with the said 1,997 Class 'N' Ordinary Shares.

Article 4:

The shares of the Company for the time being unissued (whether forming part of the original capital or of any increase in capital) shall be under the control of the directors who may allot or otherwise dispose of the same to such persons on such terms and conditions and at such times as the directors think fit without regard to any implied rights of the holders of any of the issued shares for the time being to participate in such allotment or disposition and with full power to give to any person the call of any shares either at par or at a premium during such time and for such consideration as the directors think fit.

Article 43

The Company may from time to time by ordinary resolution -

(a) increase the share capital by such sum to be divided into shares of such amount as the resolution shall prescribe;

(b) consolidate and divide all or any of its share capital into shares of larger amount than its existing shares;

(c) subdivide its shares or any of them into shares of smaller amount than is fixed by the Memorandum; so however that in the subdivision the proportion between the amount paid and the amount (if any) unpaid on each reduced share shall be the same as it was in the case of the share from which the reduced share is derived;

(d) cancel shares which at the date of the passing of the resolution in that behalf have not been taken or agreed to be taken by any person or which have been forfeited and diminish the amount of its share capital by the amount of the shares so cancelled.

Article 45:

An annual general meeting of the Company shall be held in accordance with the provisions of the Act. All general meetings other than the annual general meetings shall be called extraordinary general meetings.

Article 48:

All business shall be special that is transacted at an extraordinary general meeting and also all that is transacted at an annual general meeting, with the exception of declaring a dividend, the consideration of the accounts, balance-sheets, and the report of the directors and auditors, the election of directors in the place of those retiring, and the appointment and fixing of the remuneration of the auditors.

Article 56:

Subject to any special rights or restrictions for the time being attaching to any special class of shares in the capital of the Company -

(a) on a show of hands every member (not being a corporation) present in person shall have one vote and every member being a corporation present by a representative authorised pursuant to the Act or by proxy or by attorney shall have one vote.

(b) on a poll every member (not being a corporation) present in person or by proxy or by attorney shall have one vote for every share held by him and every member being a corporation present by a representative authorised pursuant to the Act or by proxy or by attorney shall have one vote for every share held by it.

Article 65:

Until otherwise determined by a general meeting the number of directors shall not be less than two nor more than five. The first directors shall be LEO AIRE WEINSTOCK and HEDY JADWIGA WEINSTOCK.

Article 66:

At every annual general meeting each director shall retire from office and be eligible for re-election. Retiring directors shall act as directors throughout the meeting at which they retire.

Article 67:

The Company at the meeting at which a director so retires may fill the vacated office by electing a person thereto, and in default the retiring director shall if offering himself for re-election and not being disqualified under the Act from holding office as a director be deemed to have been re-elected, unless at that meeting it is expressly resolved not to fill the vacated office or unless a resolution for the re-election of that director is put to the meeting and lost.

Article 68:

The Company may from time to time by ordinary resolution passed at a general meeting increase or reduce the number of directors and may also determine in what rotation the increased or reduced number is to go out of office.

Article 69:

The directors shall have power at any time and from time to time to appoint any person to be a director either to fill a casual vacancy or as an addition to the existing directors but so that the total number of directors shall not at any time exceed the number fixed in accordance with these Articles. Any director so appointed shall hold office only until the next following annual general meeting and shall then be eligible for re-election but shall not be taken into account in determining the directors who are to retire by rotation at that meeting.

Article 70:

The Company may by ordinary resolution remove any director before the expiration of his period of office and may by an ordinary resolution appoint another person in his stead; the person so appointed shall be subject to retirement at the same time as if he had become a director on the day on which the director in whose place he is appointed was last elected a director.

Article 71:

The remuneration of the directors shall from time to time be determined by the Company in general meeting. That remuneration shall be deemed to accrue from day to day. The directors may also be paid all travelling, hotel and other expenses properly incurred by them in attending and returning from meetings of the directors or any committee of the directors or general meetings of the Company or in connection with the business of the Company.

Article 73:

The office of director shall become vacant if the director:-

(a) ceases to be a director by virtue of the Act;

(b) becomes bankrupt or makes any arrangement or composition with his creditors generally;

(c) becomes prohibited from being a director by reason of any order made under the Act;

(d) becomes of unsound mind or a person whose person or estate is liable to be dealt with in any way under the law relating to mental health;

(e) resigns his office by notice in writing to the Company;

(f) for more than six months is absent without permission of the directors from meetings of the directors held during that period.

Article 75:

The business of the Company shall be managed by the directors, who may pay all expenses incurred in promoting and registering the Company and may exercise all such powers of the Company as are not, by the Act or by these Articles, required to be exercised by the Company in general meeting, subject nevertheless, to any of these articles, to the provisions of the Act and to such regulations being not inconsistent with the aforesaid Articles or provisions as may be prescribed by the Company in general meeting; but no regulation made by the Company in general meeting shall invalidate any prior act of the directors which would have been valid if that regulation had not been made.

Article 82:

The directors may meet together for the despatch of business adjourn and otherwise regulate their meetings as they think fit. A director may at any time and the secretary shall on the requisition of a director summon a meeting of the directors.

Article 86:

The quorum necessary for the transaction of the business of the directors may be fixed by the directors, and unless so fixed shall be two.

Article 87:

The continuing directors may act notwithstanding any vacancy in their body, but if and so long as their number is reduced below the number fixed by or pursuant to the Articles of the Company as the necessary quorum of directors, the continuing directors or director may act for the purpose of increasing the number of directors to that number or of summoning a general meeting of the Company, but for no other purpose.

Article 115:

If the Company is wound up the liquidator may, with the sanction of a special resolution of the Company, divide amongst the members in kind the whole or any part of the assets of the Company (whether they consist of property of the same kind or not) and may for that purpose set such value as he deems fair upon any property to be divided as aforesaid and may determine how the division shall be carried out as between members or different classes of members. The liquidator may, with the like sanction, vest the whole or any part of any such assets in trustees upon such trust for the benefit of the contributories as the liquidator, with the like sanction, thinks fit but so that no member shall be compelled to accept any shares or other securities whereon there is any liability.

215 YOUNG JA: I have read in draft the reasons of both Campbell JA and those of Sackville AJA. I agree with both that the conclusions reached by Campbell JA on the first three issues are correct for the reasons his Honour has given.

216 My brothers differ on the ambit of the operation of s 1322(4)(a) of the Corporations Act 2001 (Cth).

217 The question arises over the alleged appointment of Helen Weinstock (Helen) as a director of the first respondent ("the Company"). She was appointed by a de facto director of the Company.

218 Helen's appointment was invalid. The question is whether that appointment could be validated under s 1322(4)(a), the terms of which have already been set out in the reasons of Campbell JA at [102]

219 The two elements of the paragraph that need to be examined are:

(i) whether there was an act purporting to be done in relation to a corporation; and

(ii) whether, unless validated, the act was invalid because of a contravention of the constitution of the corporation.

220 As to (i), the authorities show that the word "purported" in this context must be given a wide operation and cover at least some cases where the actor did not have power to do the required act; see eg Dicker v Angerstein (1876) 3 Ch D 600; Logue v Shoalhaven SC [1979] 1 NSWLR 537 at 550; Phonogram Ltd v Lane [1982] QB 938. I agree with Campbell JA ([148]) that what Ami did in appointing Helen was an act purporting to be done in relation to the Company.

221 As to (ii), I have read what my brothers have said. There is some guidance in the authorities as to the ambit of the operation of the paragraph, but there is no authority which provides a ready made answer to the present problem.

222 Mr McHugh SC for the appellant submitted that in order for the paragraph to apply it is necessary to find that there is a "contravention" of the constitution, either by infringing a provision of it or failing to take advantage of a provision of it. I would accept that submission.

223 It is not every invalid action within a corporation that may be validated under s 1322 as sub-sections (4) and (6) make clear. As I understand it, the approach of Sackville AJA is along the lines that the impugned action must be able to be achieved under the Act or constitution. If this is the case, then, where the action is performed in a different and invalid way, it may be validated under the section. However, if it is not possible to attain the result under the Act or constitution, the section cannot assist. Whether I have read Sackville AJA correctly or not, I consider that this is the proper approach to the section.

224 If this or some near variation is not adopted, the section would cover almost every invalid action in the face of the express limitations built into sub-section 6.

225 Accordingly, I would agree with the orders proposed by Sackville AJA.

226 It is unnecessary to consider the detailed matters considered by the primary judge as to whether, if the case had come within the section, a validating order should have been made or whether the appellant was denied natural justice.

227 The case must thus go back to the Equity Division to determine whether there should be a winding up. Ordinarily, the present sort of problem can be fixed by an order for a court convened meeting made under s 249G of the Corporations Act. However, in the present case, there is no person qualified to make such an application. Unless there is a scheme of arrangement under s 411 or a compromise, the options available to the Judge in Equity may be very limited.

228 SACKVILLE AJA: I have had the privilege of reading Campbell JA's very thorough judgment.

229 I agree with his Honour that:

• Mr A D Weinstock ("Ami") was not a director of LW Furniture Consolidated (Aust) Pty Ltd ("the Company") on 30 July 2003 and thus did not have power on that date to appoint his wife, Ms H Weinstock ("Helen"), as a director of the Company;
• Ami's purported appointment of Helen as a director of the Company was not validated by Article 92; and
• Ms T Beck ("Tami") is not precluded, by reason of her failure to raise the issue in earlier proceedings, from now contending that Ami did not hold office as a director of the Company on 30 July 2003.

The Validation Issue

230 However, I respectfully disagree with the conclusions that the purported appointment of Helen as a director ("the Purported Appointment") could be validated by an order made pursuant to s 1322(4)(a) of the Corporations Act. The relevant provisions of s 1322 are set out by Campbell JA (at [102]). His Honour also records (at [108(a)]) the question for determination identified by Mr McHugh SC, who appeared with Mr Barnett for the appellant (Tami).

231 The critical issue in my opinion is whether the purported appointment by Ami of Helen as a director was invalid "by reason of a contravention of a provision of this Act or a provision of the constitution of a corporation": s 1322(4)(a). The primary Judge found (at [150]-[151]) that there was a "contravention" of the constitution of the Company for these reasons:

"... [T]he person who purported to make the appointment allowed by the constitution did not formally and regularly occupy the position of director necessary to make the appointment a valid appointment. It cannot be said that there was no action or that the person acting was a mere interloper. [Ami] was not only a member holding one 'C' share but also a former director whose appointment, validly made, had expired and who had then functioned as a de facto director for some thirty years. Those connections with the company did not make him capable of acting under the combination of article 87 and article 69 under which he ostensibly acted.

151. The conclusion that there was, in these circumstances, a 'contravention' of the constitution is confirmed by the following passage in the judgment of Lehane J in Nece Pty Ltd v Ritek Incorporation (1997) 24 ACSR 38

'... [C]ases such as North Sydney Brick & Tile [North Sydney Brick & Tile Co Ltd v Darvall (1989) 17 NSWLR 327] and Omega Estates [Omega Estates Pty Ltd v Ganke (1962) 80 WN (NSW) 1218] proceed on the basis that if something is done which has not been properly authorised because, for example, appropriate resolutions have not been passed or because there is in office no validly elected board of directors, the doing of it without authority may be regarded as a contravention, for these purposes, of the articles of association.'

152. Acceptance here of the proposition that something not properly authorised 'because there is in office no validly elected board of directors' is a 'contravention' of the constitution is of particular significance. The absence of the formal status of sole extant director that would have enabled [Ami] to act as he purported to act on 30 July 2003 is of the same quality as non-existence of a validly elected board of directors and therefore within the relevant concept of 'contravention'."

Interpretation of s 1322(4)(a)

232 A number of propositions are established in relation to the construction of s 1322(4)(a):

• Section 1322 is a remedial provision to be accorded a liberal interpretation. Its scope and operation are not to be restricted solely because of the effect an exercise of the power might occasion to third parties: North Sydney Brick & Tile Co Ltd v Darvall (1989) 17 NSWLR 327, at 341, per Clarke JA (with whom Samuels and Mahoney JJA agreed); Winpar Holdings Ltd v Goldfields Kalgoorlie Ltd [2001] NSWCA 427; 40 ACSR 221, at 240 [74], per Giles JA (with whom Beazley JA and Davies AJA agreed); see also the authorities cited by Campbell JA (at [130]).
• The word "contravention" in s 1322(4)(a) is to be read very widely and is not to be confined to its orthodox meaning of "infringement": NRMA Ltd v Gould (1995) 18 ACSR 290, at 293, per Young J; Jordan v Avram (1997) 141 FLR 275, at 276, per Gillard J; Sheahan v Londish [2010] NSWCA 270; 80 ACSR 337, at [162], per Young JA; at [234], per Lindgren AJA. Thus a failure to comply with the articles in the course of taking steps that the company is not obliged to take (for example, a reduction of capital) may constitute a contravention: Re Centennial Coal Co Ltd [2006] NSWSC 62; 226 ALR 341, at 346 [15], per Barrett J.
• Section 1322(4)(a) is not confined to procedural irregularities, but extends to irregularities, errors and mistakes of a general nature. It includes a power to validate an act which is not in accordance with the articles: Jordan v Avram, at 157. The balance of authority favours the view that an irregularity can include a deliberate act of non-compliance with the articles or the Corporations Act: Nenna v Australian Securities and Investments Commission [2011] FCA 1193; 284 ALR 386, at 397 [54], 401 [76]-[82], per Middleton J.

The Present Case

233 While s 1322(4)(a) must be given a liberal interpretation, it is necessary for an applicant (in this case Ami) to bring himself within the language of the provision. In particular, an applicant must show that the act or proceeding sought to be validated was invalid by reason of a contravention of the Act or of the constitution of the company. Even on a generous interpretation of the word "contravention", I do not think that it can be said that Ami's purported appointment on 30 July 2003 of Helen as a director of the Company was an

"act ... purporting to have been done ... in relation to a corporation [that was] invalid by reason of any contravention of a provision"

of the Corporations Act or of the constitution of the Company.

234 Ami had ceased to be a director on 31 December 1973, 30 years before the purported appointment. He continued to act as a director of the Company after that date, but at no subsequent time was he a lawfully appointed director. This was not because Ami had been the subject of a purported but invalid appointment. It was because his term as a director had expired immediately before the Annual General Meeting of 31 December 1973 and he had never been reappointed. The resolution passed at the meeting held on that date (at [34] above) simply did not apply to him.

235 Ami purported to exercise a power which the Articles (Art 69) limited to a lawfully appointed director. Ami had never been a director of the Company since his term as a director expired in 1973. At no time during that period did the Company or the directors purport to appoint him as a director. In 2003, when Ami purported to exercise the power to appoint Helen as a director, there were no validly appointed directors of the Corporation and none of the members of the Corporation had any right or power to vote at a general meeting (see the primary judgment at [28], [103], [106], [113], [114]). Thus there was no mechanism available to the Company, whether in general meeting or otherwise, to appoint Ami as a director.

236 It does not assist the Company that "contravention" in s 1322(4)(a) has been construed to extend to a failure to take advantage of a provision in the articles of a corporation. There is no provision in the Articles of the Company of which Ami could have taken advantage in order to appoint Helen as a director. Ami's act was ineffective (a better description in my view than "invalid") because he was not, and could not be appointed as, a director of the Company. In my opinion, it is stretching language to breaking point to suggest that Ami's act was ineffective (or invalid) because he contravened or failed to take advantage of a provision in the Articles or the Act.

237 The primary Judge thought that the purported appointment of Helen was a "contravention" because an act by a de facto director was equivalent to the act of an invalidly appointed board of directors. In my opinion, this analysis assumes that any act committed by an invalidly appointed board of directors will always involve a "contravention" of the constitution of the corporation or of the Act. I do not think that that is necessarily the case. Whether there is a "contravention", even in the widest sense, will depend on the reasons why no validly appointed board of directors is in place and the nature of the act purportedly done by the de facto directors.

238 The primary Judge also appears to have assumed that any unauthorised action by a de facto director can be said to be invalid by reason of a contravention of a provision of the constitution or of the Act. Again, I do not think that this is necessarily correct. Whether acts performed by a de facto director are invalid for that reason must depend on the reasons why the de facto director was not a lawfully appointed director and the nature of the acts he or she has purported to perform on behalf of the corporation.

239 It is one thing to apply s 1322(4)(a) of the Corporations Act to the purported acts of an invalidly appointed director and another to apply the provision to the purported acts of someone who has never been validly appointed as a director and cannot be so appointed. If, for example, the appointment of a person as director was invalid because the meeting which resolved to make the appointment was not properly convened, a fresh appointment could be made at a duly convened meeting and the acts of the de facto director ratified. But where a person has never been appointed a director (at least after his or her original term expired) and cannot be validly appointed, the purported act of that person, even if performed when he or she was a de facto director, cannot in my view be described as invalid by reason of a contravention of the articles or of the Corporations Act. Nor can it be said that the de facto director's purported acts are invalid by reason of a failure to take advantage of a provision of the constitution of the corporation or of the Corporations Act.

240 I should add that I do not disagree with the proposition stated by Campbell JA (at [141]), that the language of s 1322(4)(a) should be given its full width. The problem, in my view, is that the full width is still not wide enough. There are other mechanisms under the Corporations Act for dealing with a corporation that has become paralysed, particularly where the members of the corporation are at loggerheads.

The Authorities

241 In none of the cases to which we were referred was an order made in circumstances similar to the present case. I accept, as Campbell JA observes (at [120]) that this does not necessarily preclude the application of s 1322(4)(a) to this case. But the fact that all previous decisions applying s 1322(4)(a) are distinguishable adds force to the conclusion I have reached.

242 As Campbell JA has dealt at length with the authorities construing s 1322(4)(a) of the Corporations Act or its predecessors, I do not propose to examine them in detail. However, I shall make some brief observations about some of the cases referred to in argument.

243 In Omega Estates Pty Ltd v Ganke (1962) 80 WN (NSW) 1218, as a consequence of non-compliance with the articles of a company, there were doubts as to the validity of the appointment of the directors. There was no suggestion that the directors could not be validly appointed or that the irregularities could not be cured. Moreover, as Campbell JA has pointed out (at [125]), the case concerned a differently worded provision (s 366 of the Companies Act 1961) which, in any event, was held not to apply in the circumstances of the case.

244 In Re Australian Continental Resources Ltd (1975) 1 ACLR 405, the Court was concerned with the ACT equivalent of s 366 of the Companies Act 1961. The directors of a company, in contravention of the articles, purported to appoint as directors persons who were ineligible because they did not hold the prescribed minimum number of shares. Although some directors who purported to make the appointments were themselves ineligible for appointment, at all times there was at least one director capable of validly appointing directors. Nor was there any impediment to the putative directors acquiring the minimum number of shares and thus being eligible for appointment or re-appointment.

245 In Jordan v Avram, Gillard J applied s 1322(4)(a) to validate the purported appointment of two directors of a corporation. The purported appointment had been made by two non-directors, whose own company held 50 per cent of the shares in the corporation. The other 50 per cent of the shares in the corporation were held by a company associated with the existing director, who had power to make the appointments if he so chose. Presumably the two non-directors could have required the existing director to make the appointments, by obtaining orders enforcing the antecedent agreement between the two families. Alternatively, the two non-directors could have called a general meeting which would have had power to appoint additional directors. While the families were deadlocked, the non-directors could have enforced the antecedent agreement through the mechanism of the general meeting if necessary obtaining orders to enforce the terms of the agreement. Gillard J made the orders sought, but his Honour did not specifically consider whether a purported appointment by someone who was not a director and had never been so appointed was a "contravention" of the constitution of the corporation. (It does not appear that the issue was raised in argument.)

246 In North Sydney Brick v Darvall, the Court of Appeal did not find it necessary to consider the application of s 539(4)(a) of the Companies (New South Wales) Code, (the predecessor to s 1322(4)(a)). Nonetheless, Clarke JA considered that the provision could have been applied to validate a resolution which had been passed at an extraordinary general meeting, but not in the form required for the declaration of a dividend. There was no issue that the meeting had power to pass a resolution in the appropriate form.

247 In Nece Pty Ltd v Ritek, Lehane J held that s 1322(4)(a) was inapplicable in the particular circumstances of that case. Lehane J's obiter comments (at [231] above), referred to by the primary Judge, were not directed to a case such as the present, but merely contemplated that an act done by an invalidly appointed board of directors could constitute a "contravention" of the constitution of the corporation for the purposes of s 1322(4)(a). His Honour did not need to consider and did not in fact consider how the provision might apply, if at all, where a person who was not a director, and could not be appointed as a director by any procedure available to the corporation, purported to appoint another director.

248 In Sheahan v Londish, X, the sole corporate shareholder of a corporation (Y), gave notice advising Y that X had removed a director. The notice was not expressed to be and did not purport to be an act or resolution of Y and thus was "the purported exercise of a non-existent power under a non-existent article of [the corporation]" (at [90]), per Young JA. Section 1322(4)(a) was applied to validate the notice because it was open to X to take advantage of s 249 of the Corporations Act (dealing with the form of resolutions of one member companies) to achieve the same result (see at [161], per Young JA).

249 None of these cases involved an act by a person who, although a de facto director, had not been appointed (or purportedly appointed) as a director and could not be appointed as a director because there was no mechanism available to the corporation to bring about that result. They therefore do not govern or provide clear guidance for this case.

ORDERS

250 For these reasons, I think that the appeal should be allowed. Campbell JA has also concluded that the appeal should be allowed, but for different reasons. I would make the same substantive orders proposed by Campbell JA, except that I would amend Order 3 so as to remit the matter only for the purpose of determining whether the Company should be wound up. I would also order the respondents to pay the costs of the appellant of the appeal and cross-appeal.

251 As I would order the respondents to pay the whole of the costs of the appellant of the appeal, it is appropriate that the respondents' certificate under the Suitors' Fund Act 1951 relate to all of their costs of the appeal. I would assess those costs as being 80 percent of the combined costs of the appellant of the appeal and the cross-appeal.

252 Thus, the orders I propose are:

(1) Appeal allowed.

(2) Orders 2 and 3 in the court below be set aside.

(3) Remit the matter to the primary judge, or such other judge as the Chief Judge in Equity might decide, to determine whether the Company should be wound up.

(4) Cross-Appeal dismissed.

(5) Respondents to pay the costs of the Appellant of the appeal and cross-appeal.

(6) Costs of the first trial to follow the event of the second trial.

(7) Respondents to have a certificate under the Suitors Fund Act 1951 concerning those costs of the Appellant of the appeal that they have been ordered to pay, which are assessed as being 80 percent of the combined costs of the Appellant of the appeal and the cross-appeal.

**********

Amendments

20 April 2012 - [202] - last sentence amended to read "10 December 2010".[220] - last sentence, "Ari" amended to read "Ami".[233] - identity of applicant corrected.
Amended paragraphs: [202], [220] and [233]

Decision last updated: 08 October 2012