This case demonstrates that section 1322 of the Corporations Act 2001 (Cth) will be available to validate resolutions made at a general meeting where the lack of a quorum was not achieved deliberately and where the notice requirements have been met. Uncertainty still exists around whether section 1322 can remedy irregularities resulting from deliberate non-compliance.
This case concerned the validity of a purported members' resolution for the replacement of several directors in James Point Pty Ltd (James Point). The relevant meeting was only attended by a Mr Buckeridge and a Mr Cochrane who each held a proxy for a percentage of the shares of Port 1 Pty Ltd (Port 1) (James Point’s majority shareholder) plus the company secretary and an observer.
Chalet Nominees (1999) Pty Ltd (Chalet), a minority shareholder of James Point, challenged the validity of the meeting and sought declarations that the relevant board changes did not occur arguing that the quorum requirement of 2 members entitled to vote under the company’s constitution was not met.
Port 1 argued that the absence of a quorum was a procedural irregularity within the scope of section 1322 of the Corporations Act 2001 (Cth) (Act). Chalet in turn argued that:
- irregularities arising from deliberate conduct would not constitute a procedural irregularity for the purposes of section 1322 of the Act; and
- the absence of a quorum had caused a substantial injustice that could not be remedied under section 1322 of the Act.
Justice Le Miere accepted that the chairman had not held the meeting with a positive belief that the meeting was inquorate, and did not deliberately flout the constitution. Rather, the chairman had believed that an interpretation that a quorum was present was a legitimate position to adopt. There was no need for Le Miere J to decide whether section 1322 could apply to deliberate conduct.
With regard to the substantial injustice argument, Le Miere J observed that the major rationale for having quorum requirements is to avoid decisions objectionable to the company’s majority being passed by a small minority, but also noted that the deliberate tactic of “quorumbusting” (i.e. preventing a quorum from meeting) can prevent a company from conducting business. Le Miere J also observed that a common feature of the cases with findings of substantial injustice was a denial of opportunity for directors and members to attend meetings or make representations to members. In this case, as adequate notice for the meeting had been given, no director or member had been denied the opportunity to attend the meeting, and as such an order was made under section 1322(4)(a) of the Act that the resolutions made at the meeting were not invalid.