Introduction

The recent decision of the NSW Supreme Court in Melissa Alexander v Nicholas Edgar Burne [2015] NSW SC 345 highlights the uncertainty that can be caused when empowering resolutions are vague in how they operate.

The facts

An accountancy firm was operated under a unit trust structure and governed by a unitholders’ deed (deed). The deed provided that certain important decisions, such as a merger, had to be decided by a ‘Special Majority vote of the Unitholders’. The deed’s definition of ‘Special Majority’ was:

‘Special Majority means a vote of a majority (in number and not equity) of the persons eligible to vote in respect of a resolution.’

(A supplementary definition in the deed explained that this meant two thirds of the unitholders).

An opportunity for the firm to merge with another firm arose and the voting outcome on the approving resolution was challenged.

The required quorum for the meeting was 75% of all unitholders. There were 69 or 70 unitholders and 59 voted in person or proxy (i.e. around 84% of all unitholders). A poll was conducted which found 44 voted in favour of the merger motion.

These alternative questions arose:

  • Does a Special Majority mean a majority of all the unitholders?’ or
  • Does a Special Majority mean a majority of unitholders who voted on the resolution?

The Court’s finding

The presiding judge followed a decision he made made 17 years earlier in the case of Cullen v Galloway Cattle Society of Australia Inc (1998) 27 ACRR 648.

That decision was to the effect that the majority had to be of those persons present and voting at the relevant meeting and not a majority of all unit holders.

Takeaway message

This type of interpretation problem can occur in unitholder deeds, shareholder deeds and in company constitutions. It is important when these documents are drafted to ‘road test’ decision making problems to make sure there is no ambiguity and that the parties who sign up to those documents are satisfied that mutual intentions are reflected in the drafting. In theAlexander v Burne case, the following percentages were possibly influential in the pragmatism shown by the presiding judge:

  • The high threshold for a quorum was met.
  • The number of votes in favour of the resolution, being 44, was below two thirds of overall unitholders but represented nearly 75% of attendees’ votes at the meeting.

It is recommended the unitholders’ or shareholders’ deed (or for that matter, the company’s constitution) be reviewed for amendment where ambiguities appear.