The Supreme Court of New South Wales has overturned a decision at first instance to find that in the context of a particular unitholder deed, a special majority decision that required approval of two-thirds of “persons eligible to vote” meant two-thirds of all unitholders, not just those present at the meeting and entitled to vote. This case is a reminder of the care that should be taken when drafting voting provisions in unitholder and shareholder agreements to ensure that the expressed wording reflects the intention.
Under the BDO Unitholders’ Deed (Deed), approval of the merger of BDO and Grant Thornton required a ‘special majority’, being a vote of two-thirds of “persons eligible to vote in respect of a resolution”. In addition, a quorum for a meeting required 75% of unitholders to be “present in person or by representative”.
Of the 69 unitholders, 59 were present at the meeting to pass the resolution approving the merger and so a quorum was declared. Voting on the resolution comprised 44 votes in favour, 3 votes not in favour and 12 abstentions.
- The issue for determination was whether a “special majority” required:
- two-thirds of unitholders present at the meeting and entitled to vote; or
At trial, Young AJA rejected the argument that the reference to “persons eligible” meant that what was required was a majority of all unitholders (and not just those at the meeting) because all unitholders were eligible to vote. Rather, Young AJA found that eligibility to vote must be determined in accordance with the Deed and a unitholder who declines to attend the meeting (voluntarily or involuntarily) has submitted to the parts of the Deed which require a quorum and entitle a majority of those who are present and voting to make the decision (see our summary of the decision at first instance in the G+T May 2015 Corporate Advisory Update).
In allowing the appeal, Tobias AJA (with Ward JA and Gleeson JA agreeing) in the New South Wales Supreme Court – Court of Appeal disagreed with Young AJA and found that a ‘special majority’ required two-thirds of all unitholders. In so finding, the Court agreed with the appellants that:
- the words “persons eligible to vote” did not evince an intention that the persons eligible to vote were only the persons entitled to vote by reason of their being in attendance at the meeting;
- in its context, the expression “eligible to vote” directed attention to persons who had the legal right or were qualified to vote at a meeting, regardless of whether they actually exercised that right by attending the meeting or giving a proxy.
The Court also found that:
- if a “special majority” required two-thirds of persons present and entitled to vote and a quorum required only 52 unitholders (being 75% of all unitholders), this would mean that a “special majority” required only 35 votes (or 49.5% of all unitholders), and it could not have been intended for such important decisions to be determined by a vote of only 50% or less;
- it was significant that a quorum required 75% of unitholders present in person or by representative (which the parties agreed meant 75% of all unitholders) because the effect was that there would always be more unitholders present at a meeting than is required to pass a special majority vote; and
- there was a deliberate distinction between the special majority requirement of two-thirds of persons eligible to vote and the separate provision that each unitholder will be entitled to cast one vote at a unitholder meeting, with eligibility directed to legal right or capacity to vote if a unitholder attends a meeting (in person or by proxy) and entitlement to cast a vote requires a unitholder to be present at the meeting.