This case illustrates that the informality of a board meeting will not necessarily negate the validity of resolutions passed at the meeting if it can be inferred by the words and actions of the meeting participants that they are prepared to dispense with formality. Directors should be mindful of this in their interactions with other board members.

On 4 December 2008, Namoi Valley Aquafarming Pty Ltd (NVAF) brought proceedings against Eastern Star Gas Ltd (Eastern Star) in the Mining Warden’s Court. Mr McHugh (the appellant) was engaged to act as NVAF’s solicitor by Mr Grammer, one of NVAF’s 3 directors. NVAF’s other 2 directors, Dean and Ronald Von Harten, then sought to join the proceedings as respondents to obtain an order dismissing or staying proceedings on the basis they were being conducted without the proper authority of NVAF. Proceedings were stayed and removed to the Supreme Court for determination of costs issues. The primary judge ordered costs against Mr McHugh, finding he had acted without the authority of NVAF. Mr McHugh appealed against the costs order on the basis that his retainer had been ratified by the NVAF board.

The Court of Appeal found firstly (contrary to the findings of the primary judge) that the signing by each of the NVAF directors of minutes of a meeting on 29 March 2009 approving the continuation of proceedings by Mr McHugh (albeit subject to a subsequent meeting being called to consider all of the evidence in the proceedings) amounted to a ratification of the proceedings and of Mr McHugh’s retainer.

On 25 May 2009, there was a further meeting of the NVAF directors to consider a settlement offer.  Despite conflicting evidence and the informality of the meeting, the primary judge found that NVAF’s 3 directors had agreed there should be a vote as to whether to accept the offer or continue the proceedings and that the Von Hartens actually voted to accept the offer (while Mr Grammer did not actually vote). The primary judge made a general observation that meetings between the NVAF directors were ‘informal affairs’ and found that the informality of the 25 May 2009 meeting did not negate the validity of the resolution passed at it. However, the primary judge further held that the meeting only conferred a limited authority on Mr McHugh to accept Eastern Star’s offer to settle the proceedings and that, given Mr McHugh’s failure to carry out those instructions (by rejecting the offer), an order of costs against Mr McHugh was appropriate.

The Court of Appeal upheld the primary judge’s conclusion as to the validity of the resolution passed at the 25 May 2009 meeting, the decisive factor being that all 3 directors were, by their words and actions, prepared to dispense with formality (and so, it did not matter that the decision was not unanimous). However, the Court of Appeal also held that because the resolution was a confirmation of the continuation of Mr McHugh’s retainer (albeit with narrow instructions to accept the offer), an order of costs against Mr McHugh was not warranted.

See the case.