Falkingham v Peninsula Kingswood Country Golf Club Ltd [2015] HCATrans 231 (11 September 2015)

Last Updated: 27 July 2016

[2015] HCATrans 231

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
Melbourne No M31 of 2015

No M44 of 2015

B e t w e e n -

WILLIAM FALKINGHAM

Applicant

and

PENINSULA KINGSWOOD COUNTRY GOLF CLUB LTD (ACN 004 208 075)

Respondent

Application for special leave to appeal

KIEFEL J
NETTLE J

TRANSCRIPT OF PROCEEDINGS

AT MELBOURNE ON FRIDAY, 11 SEPTEMBER 2015, AT 10.42 AM

Copyright in the High Court of Australia

MR J.D. MERRALLS, QC: If it please the Court, I appear for the applicant with my learned friends, MS C.E.M. EXELL and MR A.F. SOLOMON-BRIDGE. (instructed by Lyttletons Lawyers)

MR A.C. ARCHIBALD, QC: May it please the Court, I appear with MR S.B. ROSEWARNE for the respondent Club. (instructed by Maddocks Lawyers)

KIEFEL J: Yes, Mr Merralls.

MR MERRALLS: If it please your Honours, this case raises important questions concerning the availability of certain equitable defences to the statutory relief that is available under sections 232 and 233 of the Corporations Act for conduct oppressive or unfairly prejudicial to a member or members of a company. The basis upon which we seek special leave is set out in our written outline, which I assume that your Honours will have read.

KIEFEL J: Yes, of course.

MR MERRALLS: I should perhaps say that I am here in a sense as a locum. I did not participate in the preparation of those submissions but I adopt them and I wish to make a few comments of my own, perhaps drawing the threads together for the application. The equitable defence that I mentioned is, of course, laches although the trial judge referred to it as “laches, acquiescence and delay”. I do not think that there is any suggestion that there was acquiescence here, but it is essentially laches that is the equitable defence described in the leading case of Lindsay Petroleum v Hurd.

I would like to say just a little about the proceedings which unfortunately were rather informal. They commenced on 20 August 2014. An interlocutory injunction was sought but the judge declined to hear the application for interlocutory injunction and ordered an urgent trial which was held a few days later. He ordered that points of claim be filed, but there were no pleadings and there was no formal statement of points of defence. In fact, the matters relied upon in defence appeared in a rather higgledy-piggledy way during the course of the hearing through questions in cross-examination and submissions at the end.

The case was conducted over two days and judgment was delivered on the third day. The judge described the relief sought as being under the Act and in equity. The equitable remedies that he referred to were declarations of invalidity, the orders under the Act were under section 233, paragraphs (b) and (j) – (j) for the removal of the thousand or so Peninsula members who were admitted as members of the Kingswood company by a resolution of the directors and an order for the repeal of a new constitution that was adopted by a meeting of the company after the admission of those new members. That was adopted on 29 October 2013.

Although declaratory orders were claimed, the critical claims are statutory ones. The claims perhaps are an example of the endemic pleading practice of seeking declarations as well as substantive relief. The declarations are simply not needed. The judge held the admission of the Peninsula members was ultra vires and that the court in its equitable jurisdiction had power to make declarations to that effect.

He also held that the conduct of the company through the act of the directors was oppressive. Section 233 was enlivened and the wrongly admitted members were still members and as such were entitled to the benefits of membership, hence the oppression was continuing at the time of the application and he held that laches or acquiescence or delay may lie in relation to the oppression claim.

The Court of Appeal upheld or affirmed the holding of oppression, held that it was open to the judge to refuse declaratory relief in the exercise of its discretion on the basis of delay and said that the attempt by the appellant to analyse the distinctions between the equitable doctrine of laches and the relevant delay in the exercise of statutory discretion was somewhat academic. They held that certain matters were irrelevant to the exercise of the judge’s discretion which was described as a wide discretion under the oppression provisions.

KIEFEL J: Mr Merralls, did not the primary judge approach the matter in this way - by holding that there was laches applicable, as you say, to the statutory scheme but also and separately holding that in the exercise of his discretion under section 233 would not make orders undoing the merger.

MR MERRALLS: He did.

KIEFEL J: But does not the exercise of discretion under section 233 create something of a problem for you in that, laches aside, you would have to show that the discretion was not properly exercised under section 233 in any event?

MR MERRALLS: Yes, we would.

KIEFEL J: And that that raises questions, really, about the appropriateness of this matter as a vehicle to raise the question about laches.

MR MERRALLS: Indeed it does, because the Court of Appeal applied what can loosely be described as the House principles - - -

KIEFEL J: Yes.

MR MERRALLS: - - - in deciding whether to consider the matter. We say that that was the wrong approach, that it should have - because the procedures provided by sections 232 and 233 are very special. They are the product of an evolutionary change in the provision of procedural rights and substantive rights for the members of companies to obtain relief. So that we say that the Court of Appeal applied the – or took the wrong approach when it reviewed the exercise of power which it called discretion under section 233 by applying the categorical approach adopted by this Court in House’s Case, which we say is simply inappropriate for the exercise of curial review of decisions under section 233.

We contend that section 233 provides special forms of relief or provision for special forms of relief to be granted and those provisions are sui generis. They are a special set of provisions for the protection of the members of a company from many forms of oppression by those in control of the company. They are remedies for the protection of the members and, indeed, the court is required to make an order that it considers to be appropriate in relation to the company, that is, in relation to the position of the applicant vis-à-vis the company and that is not how the Court of Appeal or the trial judge applied its consideration to the matter.

NETTLE J: Do you mean by that that it took into account the interests of third parties rather than the company?

MR MERRALLS: Well, it took into account the interests of third parties but it also took into account the position of the company in rather an odd way. It was not in relation to the member who was complaining about the flooding of its membership by the Peninsula members, the consequent reduction of voting power of the old members within the company, and it did also take into account considerations relevant to other people rather than the position of the applicant in relation to his company.

This is a rather peculiar case because it was a company limited by guarantee, it had no share capital, and so the normal methods of granting relief – or some of the normal methods of granting relief were not available. But the overriding submission that we make is that the court accepted that the applicant was being oppressed and so a critical question arises of whether a finding of that kind having been made, relief can be wholly denied – where conduct of the affairs of the company are found to be oppressive or unfairly prejudicial to them.

We say that simply is not contemplated by the Act. If oppression exists, then there must be a remedy and it is not possible to simply deny the

remedy, in particular to deny the remedy because of the existence of other people. We contend that the grounds that were relied upon both by the primary judge and by the Court of Appeal for refusing relief simply are not matters that are pertinent to the exercise of power under section 233, and we go further and say the grounds were speculative, irrelevant, fanciful and not based upon the evidence. There is a confusion between the deprivation of benefits derived from the oppressive conduct itself and the incurring of prejudice if the incurring of prejudice is a relevant matter. Now, there is a second application which is an application in respect of costs orders.

KIEFEL J: Yes.

MR MERRALLS: That was made by a separate application simply because of the effluxion of time between the delivery of the judgment of the substantive matters and the consideration of costs. We do not seek special leave in the second application independently of the first.

KIEFEL J: No, I appreciate that.

MR MERRALLS: But we say that if special leave is granted in the first then it should be granted in the second and these matters of costs can be considered later either by the Court itself in its judgment or by the submission of written submissions as sometimes is the case in this Court. If it please your Honours, we submit that an important matter of corporations law is raised in respect of section 233 and that it is appropriate for it to be ventilated in this Court in relation to the events that have occurred.

KIEFEL J: Thank you, Mr Merralls. Yes, Mr Archibald.

MR ARCHIBALD: Can I take the Court to the reasons of the primary judge at page 31 of the application book, paragraph 113. His Honour there concluded that even if his Honour were to be wrong in respect of the view that he had expressed about laches at paragraph 111, in any event, in his discretion under section 233 he “would not make orders undoing the merger”. His Honour then expressed in short compass his Honour’s function as he saw it. In our submission, it is a correct expression of function in respect of the discretion. His Honour said he needed to:

balance the harm done to the members of the company . . . with the plaintiff’s entitlement to relief.

What that shows unerringly in our submission is that his Honour did have regard to the interest of the company, on the one hand, and did have regard to the interests of the complaining member on the other. On the facts before his Honour, his Honour concluded that the facts were sufficient to disentitle the plaintiff to the particular relief sought which was really to undo the merger, unscramble the egg. It is abundantly clear, in our submission, that that ground stands quite independently and separately of the conclusion otherwise reached about laches.

NETTLE J: Is it right to include in the consideration the new members of the company where what is sought on the basis of the oppression that they be excluded?

MR ARCHIBALD: Yes, in our submission, because they are corporators. One may look differently at what can be called “old members” against “new members”, but there is no justification at all, in our submission, for excluding from consideration those who are in fact corporators of the Club where the merger has proceeded. The merger is not void, as the trial judge showed, but at best voidable, if one likes speaking in terms of setting aside. So they have become members of the company. They are members of the company unless and until there are vitiating orders and their interest that they have achieved and acted upon in the meantime falls properly for consideration, a fortiori the old member.

Amongst the old members there are those who supported the merger and those who were against the merger. The interests of those who voted for the merger and wanted it to occur to salvage the company from financial despair are properly taken into account. The interests of those who opposed are captured by consideration of the plaintiff as the lead member promoting the cause of the dissidence. At paragraph 114, page 32, his Honour elucidated some of his Honour’s reasoning. His Honour said that:

In the circumstances where the clubs have been merged for almost a year, I consider the relief sought by the plaintiff to be unwarranted, bearing in mind the inconvenience and prejudice that would be caused to the members of the Peninsula Kingswood Club today.

So, his Honour is taking into account all the factual circumstances and reaching a conclusion as a matter of evaluating the position before his Honour. The Court will observe that there is no language redolent of House v The King in his Honour’s reasoning and, as I understand it – I was not involved in the trial – the House point was raised on appeal but not before the primary judge.

So the primary judge’s conclusion is uninfected by any complaint that may be said to be made about House v The King. It is a proper consideration of the elements which fall for consideration under the discretion. Then may I take the Court to the decision of the Court of Appeal and I take the Court to paragraph 75 of the reasons. These are the reasons of Justice Whelan. This paragraph appears at page 72. His Honour came to deal with the question of delay.

At paragraph 75, he referred to the text indicating the availability of a defence of delay to proceedings for a declaration of invalidity. Declarations were, as my friend said, sought here but we accept they are probably auxiliary at best. Then having mentioned two cases concerned with that matter, his Honour at paragraph 79 observed that the discretion under section 233 was “a wide discretion”.

Further matters were canvassed and then, at paragraph 85, his Honour referred to the findings of the trial judge as to laches, on the one hand, and the statutory ground, section 233 on the other hand. Then at paragraph 88, page 76, line 35, his Honour referred to the “declaratory relief” ground, said:

it was open to the judge to refuse that relief in the exercise of his discretion on the basis of delay.

Then, at line 39, dealt with the oppression ground, that is section 233, said:

delay was a relevant matter for the judge to take into account in the exercise of the wide discretion given –

So, what the Court of Appeal did – Justice Whelan delivering the leading judgment of the court, the judgment in which others agreed, was to exclude from the court’s analysis the laches ground altogether, fastening upon only two: declaratory relief on the one hand and the statutory ground on the other.

So, in our submission, when one has regard to the reasons of the Court of Appeal, one does not get to the laches ground where the point of attack is made. Having got to that point, the matter became one of considering whether on the facts there was an error in the exercise by the primary judge of his conclusion as to circumstances precluding the grant of relief. Those matters are rehearsed at paragraphs 90 to 99. Then at paragraph 100, the conclusion expressed that:

The appellant failed to establish any relevant error in relation to the exercise of the judge’s discretion not to grant relief by reason of delay.

Reference to the paragraphs we have taken the Court to. Then there is a sentence added which deals, it would seem, with one of the elements of House v The King. It is important to understand that even before the Court of Appeal, the argument in relation to House v The King was directed exclusively to the laches ground, not to the statutory discretion ground. One sees it in the applicant’s reply in this Court at page 273, paragraph 9, at line 39:

It was not in dispute in the Court of Appeal that House v The King applied to that alternative exercise of the trial judge’s discretion not to grant relief under s 233, but it was never contended that House v The King should apply to the review of laches.

So the position adopted by the applicant in this Court on the appeal was you do not use House v The King for laches, you should use it for section 233. So the analysis of the Court of Appeal, concluding at paragraph 100, is entirely consistent with the contentions of the applicant as they were conducted before the court.

It may be doubted, however, whether House v The King principles make any difference on the facts of this case. The factual elements were carefully considered, not only by the trial judge but by Justice Whelan, paragraphs 90 to 99, and the conclusion was reached that no error in what the primary judge did by reason of a consideration of those elements. The additional sentence – the second sentence in paragraph 100, then confirms that using the discipline of House nothing is disclosed that would reveal error on House principles.

So, in our submission, on the section 233 ground, nothing is shown by way of error in the decision of the Court of Appeal. The matter turns upon the particular facts of the case and the matter is not one which would warrant the intervention of this Court. All the other matters that are sought to be raised by the applicant simply do not arise or, put differently, the case is not a suitable vehicle. One does not get to the laches ground. One does not get to the argument that House should not have been applied to the laches ground. One does not get to the section 1322 ground and so on.

So, in our submission, leave in respect of the first application should be refused. As to the second application, we say leave should be refused in any event. The argument is not one in which there is a contention which would be affected by the outcome of the substantive application. The contention is, regardless of the outcome, the applicant’s costs should be paid by the company on an indemnity basis. We say that is unsound in principle for the ground which the applicant has litigated is the oppression ground. The basis urged for the grant of indemnity costs was the Wallersteiner principle, or as Lord Hoffmann called it, the Wallersteiner invention.

The amplitude of that invention is confined to derivative cases where the litigator is bringing the claim in substance as agent on behalf of the company. The principle is, well, the agent should have his costs paid by the

principal. This claim is not such a case. Oppression claims, as the authorities and texts show, are claims brought to defend the individual private interest of the member. They are not brought on behalf of the company.

There was an avenue available to the applicant whereby indemnity costs might be ordered, that is, under Part 2F.1A. The Corporations Act abolished derivative action, section 236, and brought in Part 2F.1A which allows to be agitated what used to be claims under the exception to the rule of Foss v Harbottle. That part does allow explicitly the grant of indemnity costs, but the applicant did not invoke that avenue. So it is left to the general wide discretion for the order of costs and the Court of Appeal and the court below have exercised that discretion. There is no warrant for the intervention of this Court. If the Court pleases.

KIEFEL J: Mr Merralls, do you have anything in reply?

MR MERRALLS: Yes, your Honours. My learned friend did not deal at all with the submission that we make which is an essential submission that when oppression is found under section 232, it is not open to the court simply to send the oppressed person empty away. Some remedy must be provided. Here no remedy was provided.

On the House point we say that House is irrelevant, of course, to the consideration of the primary judge, and on the second submission that was made that House was capable of being applied on appeal, well, that was a concession that was made before the Court of Appeal but we say that in these circumstances it was wrongly applied.

KIEFEL J: Yes, thank you.

We consider that the substantive proceedings are not a suitable vehicle for the determination of the question as to the availability of the defence of laches to proceedings under section 232 of the Corporations Act. Special leave is refused in that matter and in the application for special leave with respect to costs. Special leave is refused with costs.

Thank you, gentlemen.

The Court will now adjourn to reconstitute.

AT 11.19 AM THE MATTERS WERE CONCLUDED