In Alexander v Burne [2015] NSWCA 377, the NSW Court of Appeal has recently emphasised the need for clarity in describing the level of approval required to pass a resolution at a general meeting. If the intention is that a percentage, say 75%, of the votes cast by those in attendance at the meeting is required, rather than votes cast by those holding 75% of the total number of shares (or units) on issue, this should be clearly prescribed in the constituent document (or any applicable shareholders’ deed or unitholders’ deed).

Background 

BDO operated through a unit trust with approximately 69 unitholders. In 2012 a resolution was put to the unitholders of BDO to approve the merger of BDO with Grant Thornton. The unitholders’ deed required the approval of “two-thirds or more…of the persons eligible to vote” in respect of the resolution. A quorum of 75% of unitholders was required for a unitholder meeting.

Ultimately, 59 unitholders were present for the vote, satisfying the quorum requirement. 47 votes were cast, with 44 votes in favour of the merger and 3 votes against. The votes in favour constituted more than two-thirds of the votes cast by unitholders present. BDO and Grant Thornton proceeded to merge. 

Some of the unitholders contested the validity of the resolution. They argued that the 44 votes in favour, while constituting more than two-thirds of the votes cast by unitholders present, did not constitute two-thirds of the total number of unitholders (69) holding units in the trust. 

Primary Judgment

At first instance, Young AJA, found that that the unitholders’ deed required the resolution to be passed by two-thirds of votes cast by those present at the meeting, not of all unitholders. 

Young AJA referred to Cullen v Galloway Cattle Society of Australia Inc [1998] NSWSC 86, and relied on the principle that where a select and definite group (such as a board of directors) is voting on a resolution, then (without further guidance in the body’s constitution) a specified majority should be calculated by reference to all of those in the select and definite group. On the other hand, where there is to be a vote of constituent members, then calculating a specified majority by reference to those present at the meeting would be sufficient. Young AJA considered that BDO’s unitholder meeting fell into the latter category.

The Court of Appeal

The Court of Appeal unanimously allowed the appeal, and set aside the decision of Young AJA. The Court thought it significant that the unitholders’ deed entitled every unitholder to a single vote at a meeting, while requiring two-thirds of unitholders eligible to vote to pass a resolution by special majority. 

In the Court’s view, a unitholder is eligible to vote even if he or she does not attend the meeting. Entitlement, on the other hand, arises by virtue of the unitholder’s presence at the meeting. That is to say, all unitholders are always eligible to vote, but only those present are entitled to vote on a resolution.

It was also relevant that the quorum requirement of 75% meant there would always be a sufficient number of unitholders present at a meeting to pass any resolution by two-thirds of the total number of unitholders. If only two-thirds of those present at the meeting were required to pass the resolution and only 75% of unitholders were present at the meeting, then only 58% of the total number of unitholders would be required to pass the resolution. The Court considered it ‘unlikely’ that this was the intention at the time the parties entered into the deed. 

The Court distinguished the English case of Knowles v Zoological Society of London [1959] 1 WLR 823, which Young AJA relied upon in his judgement. In that case, the majority required was of those entitled to vote, that is, only those who were present and attending. In Knowles the inconvenience of the alternative was considered ‘grave’ and of ‘so great a magnitude as to justify the use of the word “absurdity”’. There were 7,000 fellows in the society, and it was ‘impossible to ascertain’ who was and was not able to vote without attending. In contrast, the Court considered that such issues were not raised by the present case in light of the relatively low number of unitholders.

Implications

This decision highlights the importance clearly defining in constitutions, shareholder agreements and unitholder agreements the requisite level of approval required for unitholder or shareholder resolutions. The words ‘entitled’ and ‘eligible’ must be used with care, and the relevant clause should not leave any doubt as to whether the threshold applies to all members (or unitholders) or only those attending the meeting at which the relevant resolution will be considered. Adopting the language used in the special resolution definition in the Corporations Act would be sensible if the intention is for the special majority to be calculated by reference to votes cast by those in attendance at the meeting.