JUDGE SAYS ANDREWS SUFFERED 'A SIGNIFICANT INJUSTICE'
DISGRUNTLED director BILL ANDREWS has won his Supreme Court action against Queensland Racing successfully challenging the validity of the Board election process.
We have had several requests at this web-site to provide more information on the decision handed down by Judge Margaret Wilson on Friday. Below is part of her ruling:
THIS IS PART OF WHAT JUDGE WILSON HAD TO SAY IN HER RULING:
PARTIES: WILLIAM BERNARD ANDREWS (plaintiff) vQUEENSLAND RACING LIMITED (defendant)
Supreme Court of Brisbane.DELIVERED ON: 23 October 2009. HEARING : 20 & 21 October 2009.
Judge Wilson: "The plaintiff William Bernard Andrews is one of five Directors of the defendant, Queensland Racing Limited. He and another Director will retire at the Annual General Meeting scheduled to take place next month. In this proceeding he challenges the process which has been employed to fill the vacancies on the board.
"Queensland Racing Limited is a company limited by guarantee. Since 1 July 2006 it has been a “control body” under the Racing Act 2002 (Qld), responsible for the management of thoroughbred racing in Queensland.
"The defendant’s Constitution was adopted by its first members on 26 April 2006.
"Membership of the defendant is comprised of Class A Members (racing clubs) and Class B Members (the Directors of the company from time to time).
"There were five Founding Directors – Messrs Bentley, Hanmer, Lambert, Ludwig and Andrews (the plaintiff). By clause 15, they hold office until the Annual General Meeting following the Initial Term, which is the period of not less than three years commencing on 1 July 2006 and ending at the first Annual General Meeting after those three years.
Two directors must retire at each of the first and second Annual General Meetings following the Initial Term, and one must retire at the third Annual General Meeting following the Initial Term. That is why the plaintiff and Mr Lambert will retire at the Annual General Meeting scheduled to take place on 17 November 2009.
BOARD RESOLVED TO APPOINT NORTHERN RECRUITMENT
"At its meeting on 6 March 2009 the board resolved to appoint Northern Recruitment as the Independent Recruitment Consultant for the purposes ofclause 17. That is a company (Northern Recruitment Pty Ltd) of which Mr Mark Wilson is the sole shareholder and director.
"On 1 April 2009 Mr Bentley (the Chairman of the Company) and Ms Murray (the corporate counsel) met Mr Wilson and explained something of the task and the relevant time line. Northern Recruitment was formally retained. Shortly after the meeting a form of advertisement to be placed in The Courier Mail andThe Australian Financial Review was settled. Northern Recruitment prepared a “Director Strategy” and a budget. The Director Strategy included the SelectionCriteria in Schedule A to the Constitution and a description of the general characteristics, professional background and personal attributes of which applicants should have.
"Applications for nominations closed on 29 May 2009. There were 26 written applications, including applications from the plaintiff, Mr McGruther, Mr Stewart and Mr Milner.
"At the time the applications closed, Mr Stewart was the Chairman of the Toowoomba Turf Club, and Mr Milner was the Chairman of the Brisbane Turf Club. Mr Stewart confirmed in his application that he was an eligible individual within the meaning of the Racing Act, and Mr Milner wrote on the day following his application advising that he would resign his position if his application were successful
"Mr Wilson interviewed seven applicants, including the plaintiff, Mr McGruther, Mr Stewart and Mr Milner.
"On 17 June 2009 Mr Milner resigned as Chairman of the Brisbane Turf Club.
"On 18 June 2009 Northern Recruitment wrote to the defendant advising of the outcome of Mr Wilson’s deliberations and providing a Shortlist of four persons – Mr Milner, Mr O’Hara, Mr Ryan and Mr Stewart. The letter was addressed to Ms Murray. She made it available to Mr Bentley.
"On 25 July 2009 Mr Stewart resigned as Chairman of the Toowoomba Turf Club.
"There was a board meeting on 26 June 2009 at which neither the receipt of the letter of 18 June 2009 from Northern Recruitment nor the Shortlist was disclosed.
"On 14 July 2009 Ms Murray wrote to each member of the Board advising of the shortlisted Director Candidates.
"On 15 July 2009 Ms Murray wrote to each Class A Member and each Class B Member advising of the short listed Director Candidates.
"There was another board meeting on 7 August 2009 when the plaintiff and Mr Lambert questioned the process which had been adopted. I shall return to this.
"On 14 August 2009 there was a meeting of Class A Members at which they determined the following order of preference: Milner, O’Hara, Stewart, Ryan.
"Later that day there was a special board meeting when there was further discussion of the process which had been adopted.
"Later still that day there was a meeting of Class B Members at which they determined the following order of preference: Milner, Stewart, Ryan, O’Hara.
"On 14 September 2009 the Selection Committee met, and by secret ballot, Mr Milner and Mr Stewart were selected.
"The Annual General Meeting has been scheduled for 17 November 2009.
Plaintiff’s allegations
"The plaintiff alleges that the director selection process has not been undertaken in accordance with clause 17 of the Constitution in that:
(1) Mr Wilson acted on the basis that clause 17 required the Shortlist to be comprised of a maximum of four persons
(2) Mr Wilson was not relevantly independent;
(3) Mr Wilson was partial;
(4) Mr Wilson did not prepare the Shortlist by reference to the Selection Criteria contained in Appendix A; and
(5) The Shortlist did not comply with the requirement that it be comprised of a minimum four persons because two of the four included in it were not eligible individuals for the purposes of the Selection Criteria.
TWO ISSUES AROSE AT THE TRIAL
“Two issues arose at the trial – whether Mr Wilson (recruitment company) in fact prepared the Shortlist on the basis of a maximum (rather than a minimum) of four persons, and if he did, whether he had been instructed to do so. While the evidence on each issue is intertwined with that on the other, ultimately it is only the first issue that has to be determined.
“In his letter to (Queensland Racing Corporate Counsel) Ms Murray of 18 June 2009, Mr Wilson said: “The purpose of this correspondence is to advise you of the outcome of my deliberations regarding the nomination of candidates for selection as Directors of Queensland Racing.
“At the time of closing for receipt of applications, we had received 26 written submissions regarding each individual’s interest and suitability for consideration in the role of a Director with Queensland Racing.
“Of the 26 applications that were considered, seven clearly stood out in terms of either their commercial capability, or entrepreneurial achievements at club level. Each of the seven candidates was invited to a meeting to discuss their thoughts, ideas and motivations for wanting to be put forward in consideration for the role of Director.
“Unfortunately, we are required to reduce the number to four nominations for consideration for the appointment of two Directors. I would like to place on record my observation that the likely workload for the Board over the next year or two would be better supported if there were seven Directors instead of five to allow for a richer and broader range of skill sets on the Board, as well as to give greater flexibility with regard to succession planning into the future.
“Of the seven candidates, four were more forthright in outlining their appreciation of developments in racing not only in Queensland, but in Australia and internationally. There was quite a marked distinction between the final four candidates and others who were under consideration, in terms of their willingness to devolve any activities that may cause a conflict of interest, and with this group alone, there was a complete absence of lobbying or third party endorsement.
“The four candidates nominated below, in my opinion, represent the optimum combination of skills with regard to understanding the financial operating parameters at club level, demonstrated experience in lifting financial performance at club level and the weighting of experience acrossmetropolitan, and non metropolitan racing activity. This is not the only potential combination of skills and experience. This particular group does however seem to represent a more hands on approach to the fulfilment of Director duties. The candidates are presented essentially on the basis of equal merit, because we do not have objective criteria against which we could rank them.
JUDGE CRITICAL OF QRL CORPORATE COUNSEL SHARA MURRAY
Judge Wilson was critical of the QRL corporate counsel: “Ms Murray is a well-qualified lawyer, but she was not an impressive witness. Her manner was nervous and defensive. Her conduct evinced lack of the careful attention to detail reasonably expected of someone in her position.
“She acknowledged that what she wrote in the letters of 3 and 14 July 2009 and in the board papers was simply copied from Northern Recruitment’s letter. Of course, it was inconsistent with what she said in the letters of 15 July 2009, and, importantly, with clause 17.3 of the Constitution. Ms Murray acknowledged that she did not keep records of telephone conversations.
“I accept Mr Lambert’s evidence that at the board meeting on 7 August 2009 she said (i) that she had previously held the erroneous view that clause 17.3 required the Shortlist to contain a maximum of four names and that that view had been shared by the defendant’s solicitor Mr Grace, and (ii) that she now appreciated that there had to be a minimum of four, but there was no maximum.
“She was clearly concerned and upset by the suggestion that she had instructed Mr Wilson to prepare a Shortlist with a maximum of four names and by what she perceived to be criticisms of her by Mr Lambert on 10 August 2009 – both at the time and at trial.
“In all the circumstances, I am persuaded that Mr Wilson did prepare the Shortlist on the basis that it was to contain a maximum of four names. That is consistent with the plain meaning of his letter of 18 June 2009.
WHETHER MR WILSON ACTED INDEPENDENTLY
“The plaintiff alleges that Mr Wilson ‘was not relevantly independent’ because – (i) he acted upon an instruction from the defendant to limit the Shortlist to no more than four persons; and (ii) he acted upon a requirement of Mr Bentley that the Shortlist include candidates with race club experience as well as some financial accounting background.
“I have already found that he did act on an instruction to limit the Shortlist to four names.
“There was nothing untoward in Mr Bentley discussing with Mr Wilson the skills and qualities which he thought the Directors should have. Indeed it would have been remiss of Mr Wilson not to have sought this information. It is unremarkable that Mr Bentley wanted the new board members to have race club experience and some financial and accounting background. And Mr Lambert, too, saw the need for someone with financial and accounting experience.
“By his own admission, Mr Bentley runs ‘a tight ship’. He considers it important to keep those with whom he works informed of what he perceives to be relevant developments and comments by others, as and when they occur. He spoke with Mr Wilson on a number of occasions between April 2009 and the provision of the Shortlist (including on at least one occasion in relation to an unrelated personal matter on which he had previously consulted Mr Wilson). While some may question whether Mr Bentley’s modus operandi strikes the appropriate balance between engagement and approachability on the one hand and detachment and circumspection on the other, there is no evidence that he directly interfered in the preparation of the Shortlist. There is no evidence that he knew who was going to be on the shortlist before the letter of 18 June 2009 was received by Ms Murray.
“Accordingly I am not satisfied that the second particular of want of independence has been made out."
WHETHER MR WILSON WAS PARTIAL
“The plaintiff alleges that Mr Wilson was partial, and that his partiality is to be inferred from his having asked one of the (unsuccessful) applicants what school he had attended and whether he was a practising Catholic.
“Mr Wilson acknowledged having asked these questions in the context of a general discussion with Mr McGruther about his background and life. He found Mr McGruther “frosty” and had to draw him out. One of the attributes he was looking for was consistency of achievement: educational attainments were an aspect of that. In that context he inquired of Mr McGruther where he went to
high school, and whether he completed year 10 or year 12. When Mr McGruther said he had attended Terrace (a well known Catholic boys’ school), he had asked him whether he was ‘still practising’. He said he was not influenced in any way by Mr McGruther’s religious affiliation.
“Mr McGruther is a successful and well-respected citizen. He appeared somewhat reserved in manner, and was clearly unimpressed by Mr Wilson’s interview technique generally, which was out of step with the way he himself would have undertaken the task.
“In the circumstances I do not think Mr Wilson demonstrated partiality by asking these questions.”
WHETHER MR WILSON FAILED TO PREPARE THE SHORTLIST BY REFERENCE TO THE SELECTION CRITERIA
“The plaintiff alleges that Mr Wilson’s failure to prepare the Shortlist by reference to the Selection Criteria is to be inferred from: His asking Mr McGruther these questions about schooling and religion; His including Mr Milner and Mr Stewart who were (allegedly) not eligible individuals; and his acting upon Mr Bentley’s requirement that the shortlist include candidates with race club as well as some financial accounting background.
“The Independent Recruitment Consultant was bound to prepare the Shortlist ‘by reference to’ the Selection Criteria. Those criteria are that a Director satisfy two or more of five categories of experience and that he be capable of demonstrating that he is an eligible individual within the meaning of the Racing Act.
“I am satisfied that Mr Wilson did have regard to these criteria, and that the persons on the shortlist he prepared did satisfy these criteria. As he explained in his evidence, he looked for more than satisfaction of these criteria – he looked for suitability, too. His doing so was perfectly proper.
“I have found that Mr Milner and Mr Stewart fulfilled the requirement that they be eligible individuals within the meaning of the Racing Act. It is not to be inferred from either of the other two matters relied on that Mr Wilson did not prepare the Shortlist be reference to the Selection Criteria in Appendix A.
RELIEF SOUGHT
“The plaintiff seeks the following relief:
(1) A declaration that the Shortlist has not been prepared in compliance with clause 17 of the QRL Constitution;
(2) An injunction restraining QRL, by its Chairman, from taking any further steps to elect two directors to its Board announcing at the Annual General Meeting scheduled to take place on 17 November 2009 the election of the two Directors purportedly selected in reliance upon or by reference to the Shortlist.
(3) A declaration that Neville Clyde Stewart was not an eligible individual within the meaning of s.9 of the Racing Act 2002 as at the date of preparation of the Shortlist and was not able to be nominated as a Director Candidate within the meaning of that term as contained in the QRL Constitution.
(4) Alternatively to 3, a declaration that Wayne Milner and Neville Clyde Stewart were not eligible
individuals within the meaning of s.9 of the Racing Act 2002 as at the closing date for application for
appointment to the Board of QRL and were not able to be nominated as a Director Candidate within the meaning of that term as contained in the QRL Constitution.
(5) An injunction requiring that QRL undertake the selection of the Directors to fill the vacancies created by retirements of Mr Andrews and Mr Lambert in compliance with clause 17 of the QRL Constitution based upon the twenty six (26) applications for appointment to the Board of QRL received by Northern Recruitment as at 29 May 2009.
DEFENCES
The defendant has pleaded:
(1) That the plaintiff deliberately refrained from applying for relief to restrain the Selection Committee from appointing two Directors to fill the vacancies;
(2) That any non-compliance with clause 17 has been ratified by the members of the Defendant, and that it is immaterial given that Mr Milner and Mr Stewart have already been appointed, (presumably by the Selection Committee) with effect from the next Annual General Meeting;
(3) Alternatively, that the Shortlist has been fully acted upon and nothing remains to be done, so that the relief lacks utility, and should be refused in the exercise of the Court’s discretion.
“The plaintiff’s refraining from applying for relief at an earlier time is a factor in the exercise of the Court’s discretion whether to grant declaratory and equitable relief. But it is counterbalanced by the defendant’s conduct in pressing ahead with further steps in the selection process after the flawed assumption on which Mr Wilson acted had been brought to its attention. It was discussed at the board
meeting on 7 August 2009 and at another specially convened board meeting a week later. The majority of Directors were of the erroneous opinion that because the Shortlist contained the necessary minimum number of Director candidates there was compliance with the Constitution.
“Counsel for the defendant have submitted that a declaration that the Shortlist was not prepared in accordance with clause 17 of the Constitution would lack utility, because the function of the Shortlist is fully spent: it has been provided to the Class A Members and the Class B Members who have voted on it, and based on those votes, the Selection Committee has chosen the new Directors.
They have submitted that an injunction restraining the defendant by its chairman from announcing the election of the two Directors purportedly selected in reliance on the Shortlist would also lack utility, because it is the decision of the Selection Committee that effects the election of the new Directors.
“I do not accept those submissions.
“Counsel for the plaintiff submitted that the proceedings of the Selection Committee meeting were themselves flawed because Ms Murray wrongly advised Mr Lambert that his presence was not required and because the meeting did not discuss the Shortlist and try to agree upon the preferred candidates before a ballot was conducted.
“I accept that Ms Murray wrongly advised Mr Lambert that it would not be necessary for him to attend that meeting because he would have no role to play. However, the proffering of erroneous advice did not itself cause the proceedings at the meeting to miscarry.
“The Constitution required the Class A Member representatives and the Class B Members who attended the Selection Committee to first discuss the Shortlist and try to reach agreement on who should fill the vacancies. In the absence of agreement after such time as the Chairman considered reasonable, they were to proceed to a ballot. Those in attendance were told that they were there to
attempt to agree on the new directors. There was no constitutional requirement that they spend undue time in a fruitless attempt to reach agreement. It was established very quickly that agreement would not be reached when Mr Dixon said it was unlikely and moved to proceed to a ballot. The motion was seconded by Mr Patch, and passed without dissent.
“I do not accept that the proceedings at the Selection Committee meeting were flawed.
“Nevertheless, the Constitution provides for the Chairman to announce the election of the Directors selected at the Annual General Meeting, and that the decision of the Selection Committee take effect from the conclusion of the Annual General Meeting. In the premises, it cannot be said that the relief sought in paragraphs 1 and 2 of the Claim is lacking in utility.
“As a member of the company, the plaintiff had a personal right to have the selection of directors conducted in the prescribed manner. See Ryan v South Sydney Junior Rugby League Club Ltd [1975] 2 NSWLR 660; Papaioannoy v Greek Orthodox Community of Melbourne (1978) 3 ACLR 801. Infringement of that personal right cannot be ratified by the members of the company in general
meeting or otherwise: Link Agricultural Pty Ltd v Shanahan[1999] 1 VR 466 at [18]; Miller v Miller (1995) 16 ACSR 73 at 89; Ford, Austin & Ramsay: Ford’s Principles of Corporations Law12th ed (2005) at [8.390].
“By its counterclaim the defendant has sought a declaration pursuant to s 1322(4)(a) of the Corporations Act 2001 (C’th) that the preparation of the Shortlist is not invalid by reason of any alleged contravention of a provision of the Constitution.”