In Weinstock v Beck [2013] HCA 14, the High Court of Australia had made a clarification regarding the power of the court to remedy the impact of the breach of the Corporations Act, 2001 (Cth) or the constitution of the company that has taken place as a result of an honest mistake or a procedural irregularity. The background of this case is that Mrs. Tamar Beck and Mr. Amiran Weinstock had been appointed as the directors of LWC Furniture Consolidated Pty Ltd. until the next annual general meeting of the company. The next annual general meeting of the company to place the following year and in this meeting, the shareholders of the company voted in favor of a resolution according to which Mrs. Beck and Mr. Weinstock have been appointed again as the directors of the company. However due to different reasons, that religion has not been passed effectively and the result was that technically Mrs. Beck and Mr. Weinstock had not been reappointed as the directors. Not appreciating district, both of them continued in this position and to act as the directors of the Corporation after the resolution had been passed. Under these circumstances, the 1982, Mrs. Beckett retired from her position as the director of the company. On 30th June, 2003, in his position as the sole director of the company, Mr. Weinstock decided that he was going to appoint his wife, Mrs. Helen Weinstock as the director of the company. Keeping in view, the fact that Mr. Weinstock was not properly the appointed as the director, the efforts made by him to appoint his wife as the director of the company were considered to be in breach of the Constitution of the company. In this case, it was accepted by all the parties concerned that the appointment of Mrs. Weinstock was technically invalid, keeping in view the construction of LWC.
The duties/responsibilities breached: it has been mentioned in section 1322(2), Corporations Act that any procedural irregularity will be inconsequential, unless it has been established before the court that there was or may result in “substantial injustice” to a third party, which cannot be otherwise remedied by the court (Cassidy, 2001). It has been further provided by section 1322(4) that the power has been given to the court according to which, 18 one. The application made by an interested party, the court can make a wide range of orders, which include the order that provides that the conduct resulting in the breach of the provisions of Corporations Act or the constitution of the company is not invalid (Clark, 1986).
In this way, the present dispute was concerned with the issue if the appointment of certain directors can be described as proper and valid or get the court has the power to “forgive” the failure on the part of these directors would comply with the constitution of the company or the law (Fisher, 2001). There have been several interesting cases under section 1322(4) of the Corporations Act. For example in the present case, the NSW Court of Appeal were divided regarding the issue of the appointment by one of the children of Weinstock of his wife to the position of the director of the company, so that he may have the appropriate number of directors, as valid. According to article 69 of the articles of Association of the relevant company, it has been mentioned that all the directors of the company will automatically retire at the end of the annual Gen. meeting of the company. Hence, after Tami has resigned from his position as the director of the company in 2003, Ami wanted to appoint his wife Helen as the other director of the company. Tami was also a shareholder of the company and he expressed his desire to wind up the company due to the ground that the appointment of Ami as the director of the company was not valid and as a result, the purported appointment of Helen was also invalid.
In this case, it was decided by the primary judge, Barrett J, who had relied on article 69 of the Constitution of the company to arrive at the conclusion that Ami had not been appointed by lately as the director of the company when he purportedly appointed his wife Helen as a co-director. But in this regard, the court had made an order in accordance with section 1322(4)(a), Corporations Act, which validated the appointment of Helen as a co-director and precluded the company, LWF from being wound up. The judgment given by Barrett J was unanimously upheld by the NSW Court of Appeal according to which Ami and Helen were not appointed validly to the position of the directors of the corporation. However, the Appeal Court had differences regarding the issue if section 1322, Corporations Act can be used by the court for the purpose of validating the appointment of these two persons as the directors of LWF.
In this regard, it was stated by Young J and Sackville J that section 1322(4)(a) of the Corporations Act cannot be relied upon by the board for the good was a validating these appointments. It was felt by the court that the contraventions that has been mentioned in section 1322(4)(a) of the Act was applicable in cases where the actions of a person, who has been appointed invalidly, have to be validated. As a result, the court stated that this section was not applicable in the cases, like the present case, where the law requires the court to validate the actions of someone who cannot be appointed invalidly. On the other hand, Campbell J, gave his judgment in dissent. The reason was that he was in favor of a broad interpretation of this section. According to him, all that is needed in order to be considered as a ‘contravention’ of the Constitution of the companies that something should take place that is different from what is required under the Constitution of the company (Burnett, 2001). In order to appoint Helen as a director of the company by Amy, while we did not have the power to do so, needs to be treated as a contravention and as a result it was sufficient to invoke section 1322(4)(a).
Discuss and critically ANALYSE the court/tribunal decision: Under the circumstances, an appeal was made to the High Court of Australia. After going through the facts of this case, the High Court arrived at the conclusion that the appointment of Mrs. Weinstock as the director of the company has not been validated as a result of the irregularity present in the appointment of Mr. Weinstock as the director of the LWH. Therefore in this case, the Court held that are the basis of the powers granted to the court by section 1322(4), Corporations Act and in relation to which, it was held by the High Court that the term ‘contravention’ that has been used in this section, has to be used broadly, as was the case with the general language of this section (Ford, 2001). Moreover, it was also held by the High Court that the power provided to the court in section 1322(4) should not be framed on any implied limitation. The reason behind this finding was that there was none expressly present in this section. Furthermore, it was also held by the High Court that under the circumstances where Mr. Weinstock has been acting as the director of the company for many years, the fact that his reappointment as the director of the company was technically invalid, should not cause his subsequent decisions to be considered as invalid. It was stated by Chief Justice French that in many cases, mistakes may take place in corporate governance. Similarly, it also noted the fact that innocent errors should not result in undermining the validity of the decisions that have been made by the corporations if there is no substantial injustice caused to the third parties. Furthermore, it was also stated by the court that a court is required to consider this type of matters pragmatically, principally and also keeping in view the substance as compared to form.
The rationale behind the decision of the High Court is that an honest mistake or a procedural error should not be allowed to undermine the subsequent decisions made by the directors, which rely on or assume that the earlier conduct was performed properly. On the other hand, if otherwise is found by the court, then the companies would be facing the risk of several years of corporate decision-making being unraveled every time such a mistake or error is found. In this way, while the importance of proper and thorough due diligence cannot be undermined, at the same time it is also useful to be aware of the fact that there are certain savings provisions present in the Corporations Act that have been introduced with a view to disallows the procedural irregularities from undermining the corporate decision-making held later on. Under these circumstances, the decision of the High Court given in this case should provide some relief to the external administrators of the companies even if there is a history of irregularities present in these companies. Under the circumstances where an uncertainty is present, regarding the consequential impact of a procedural irregularity or an error, such uncertainty can be managed with the help of an application that is made to the court in accordance with section 1322(4).
In this way, it has been recognized by the High Court in this case that corporate governance is very intricate and there can be considerable difficulties present in this process. Similarly, it was also held that those who own and operate the companies, large as well as small, are always not well advised and knowledgeable regarding these intricacies. Whenever, there is an error that has been the result of an innocent failure to comply with the procedure that has been provided by the Corporations Act, (including the replaceable rules) or the constitution of the company, power has been granted to the court to declare that such act, matter or thing is not invalid only due to the reason that there has been a failure to comply with the prescribed procedure.
Under these circumstances, it can be said that the decision given by the High Court involves a broad view of the circumstances under which the corporations act allows an order to be made in accordance with section 1322(4)(a) and also the rejection of the arguments that were based on technical and implied limitations related with the remedial powers that have been provided to the court by this section of the Act. Such position reflects a sensible and practical approach adopted regarding the power of the court to regularize the steps that are taken by the board and the officers of corporation, which, as a result of technical non-compliance with any provision mentioned in the Corporations Act or in the Constitution of the company would otherwise be invalid and which could not be anticipated and which has serious consequences for the concern corporation.
Therefore while deciding this case, the High Court had reviewed the scope of power that has been granted to the court by this provision of the Corporations Act to validate an act that is in breach of the provisions of the Act or the constitution of the corporation. Hence it was held by the High Court that section 1322(4)(a) provides a wide-ranging power to the court. And this power should not be restricted by implied limitations. The court also held that this power was broad enough to be used for the purpose of validating the appointment of a person as a director that had been made by the other director of the company, even if such director was himself appointed invalidly.
References
Burnett B, (2001) Australian Corporations Law, Australia: CCH
Cassidy J, (2001) Concise Corporations Law, 3rd ed, Australia: The Federation Press
Clark R, (1986) Corporate Law, New York: Little, Brown & Co
Fisher S, (2001) Butterworths Tutorial Series: Corporations Law, 2nd ed, Australia: Butterworths
Ford H, (2001) Ford’s Principles of Corporations Law, 10th ed., Australia: Butterworths
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