CATCHWORDS

CORPORATIONS - management and administration - requirement of articles of association that directors "meet together for the dispatch of business" - whether physical presence required - whether directors can transact business by telephone.

CORPORATIONS - external administration - voluntary administration - doubt as to validity of purported appointment of administrator - application for order declaring whether appointment valid - one director present at directors' meeting "by telephone".

Corporations Law ss 436A, 447C, 447D, 449C

Higgins v Nicol (1971) 18 FLR 343

Re Southern Resources (1989) 15 ACLR 770

Magna Crete Ltd v Douglas-Hill (1988) 48 SASR 565

Bell v Burton (1993) 12 ACSR 325

Wagner v International Health Promotions (admin apptd) (1994) 15 ACSR 419

Australian National Airways Pty Ltd v Commonwealth (1945) 71 CLR 29

Lansell v Lansell (1964) 110 CLR 353

R v Judges of the Federal Court of Australia and Adamson; Ex parte The Western Australian National Football League     (Inc) (1979) 143 CLR 190

No. SG 3096 of 1995

RE:

THE CORPORATIONS LAW

- and -

G.I.G.A. INVESTMENTS PTY LTD (IN ADMINISTRATION) (ACN: 007 924 665)

ROBERT ANTHONY FERGUSON                            Applicant

Branson J

Adelaide

30 June 1995

IN THE FEDERAL COURT OF AUSTRALIA)

                                  )

SOUTH AUSTRALIA DISTRICT REGISTRY)    No. SG 3096 of 1995

                                  )

GENERAL DIVISION                  )

                                  RE:

                                  THE CORPORATIONS LAW

                                  - and -

                                  G.I.G.A. INVESTMENTS PTY LTD (IN ADMINISTRATION) (ACN: 007 924 665)

                                  ROBERT ANTHONY FERGUSON

                                                   Applicant

                    REASONS FOR JUDGMENT

CORAM:    Branson J

PLACE:    Adelaide

DATE:     30 June 1995

By an application brought in reliance on ss447C and 447D of the Corporations Law, the applicant, the putative administrator of GIGA Investments Pty Ltd (In Liquidation) ("the company"), has sought, amongst other things, an order declaring whether or not his purported appointment as administrator of the company is valid.  On 23 June 1995 I made an order declaring that his purported appointment was valid.  The following are my reasons for doing so.

The applicant was purportedly appointed as administrator of the company pursuant to s449C of the Corporations Law on

 14 June 1995.  The administrators of the company earlier appointed pursuant to s436A of the Corporations Law had resigned by notice in writing as allowed by s449C(1) of the Corporations Law.  As a consequence the company was empowered to appoint someone else as administrator of the company pursuant to a resolution of the board (s449C(1) and (3) of the Corporations Law).

A copy of the minutes of the meeting of directors of the company at which the applicant was purportedly appointed as the administrator of the company are in evidence before me.  The relevant resolution is unexceptional in its terms.  However the minutes whilst recording that the only two directors of the company were present, show that one of them was present "by telephone".

The specific ground upon which a doubt has been raised as to the validity of the purported appointment of the applicant as administrator of the company is whether a resolution of the board of the company passed at a meeting of directors of the company held in the way indicated by the minutes is a valid resolution.  The issue thus raised is one which involves the interpretation of the articles of association of the company.

The articles of association of the company contain the following provisions concerning proceedings of directors, associate directors and minutes:-

The validity of a meeting purportedly held by telephone was considered by Joske J in Higgins v Nicol (1971) 18 FLR 343 at 357.  The other two members of the Commonwealth Industrial Court did not deal expressly with the issue of a meeting purportedly held by telephone.  Joske J stated:-

     "So far as the resolution of 23rd October, 1970, is concerned, it is claimed that it was passed at a meeting
of federal conference of the organization conducted by telephone on 23rd October, 1970.  There is no provision for a meeting to be conducted in this way, by telephone hook-up as it is called, to be found in the rules of the organization, although provision is made for obtaining a vote by correspondence.  It has not yet been decided that a telephone hook-up constitutes a meeting.  It may be that technical television improvements of the future would have some bearing on this.  A meeting is not only something where people speak but where they also meet each other in the flesh.  There are differences.  Thus persons exist who are prepared to be insulting over the telephone to people to whom they are only game to be pleasant when they meet.  However this may be, having regard to the provision for correspondence communication in the rules and the absence of any provision for a telephone hook-up, in my opinion the rules of the organization do not permit federal conference to operate by way of telephone hook-up and for that reason in itself, in my opinion the resolution of 23rd October, 1970, is invalid."

In Re Southern Resources (1989) 15 ACLR 770 at 792-794 Perry J concluded that certain articles of association not materially different from those under consideration in this case did not contemplate participation by telephone in a meeting of directors, whether such participation took place by telephone conference connections or by one or more directors simply being telephoned during the course of the meeting.  Earlier in Magna Crete Ltd v Douglas-Hill (1988) 48 SASR 565 at 603 Perry J had said:-

     "The law has not yet advanced to the position whereby board meetings of directors may lawfully be held by separate phone calls to directors: see Corkery, Directors' Powers and Duties, Longman (1987) p12 and the cases there cited.

     It may be that a meeting of directors could be held on a conference telephone but that is not the position here."

In Bell v Burton (1993) 12 ACSR 325 at 328-329 Tadgell J said, in the context of articles of association that provided that "directors may meet together for the dispatch of business ....", as follows:-

     "No doubt there is no necessity nowadays - if there ever was - that directors should gather physically together at a directors' meeting.  In appropriate circumstances they may meet by assenting to a document, or by telephone, video link, or other electronic means which caters for a meeting of their minds."

Santow J in Wagner v International Health Promotions (admin apptd) (1994) 15 ACSR 419 at 421-422 expressly adopted what was said by Tadgell J in Bell v Burton.  His Honour went on:-

     "Essentially, what his Honour [i.e. Tadgell J] held was that under articles not materially different to those before me (see in particular art 103 (sic) referring to "the directors meeting together", that there is no necessity for the directors to gather physically together at a directors' meeting.  I agree that the words "meet together" connote a meeting of minds made possible by modern technology and not of bodies.  There is evidence that there was a telephone conference call so that the conversations took place with everyone hearing everyone else."

The issue here is ultimately one of the interpretation of the words "meet together" appearing in art.113 of the articles of association of the company having regard to the context in which they appear and the nature and purpose of articles of association.

There is no evidence before me as to the date upon which the articles of association of the company were adopted.  Orthodox rules of construction would require that the words of the
articles of association be given the meaning which they had as at the date of their adoption.  If this is a recent date no difference between that meaning and the current meaning of such words is likely.  If the articles of association were adopted many years ago the position might be different.

However, without departing from the orthodox rules of construction, courts are, in my view, entitled to recognise that articles of association are instruments of company governance intended to endure and to be capable of operating with flexibility in changing circumstance  (cf the approach of the High Court to the interpretation of the Constitution as reflected in e.g. Australian National Airways Pty Ltd v Commonwealth (1945) 71 CLR 29 at 81; Lansell v Lansell (1964) 110 CLR 353; R v Judges of the Federal Court of Australia and Adamson; Ex parte The Western Australian National Football League (Inc) (1979) 143 CLR 190).

What is the purpose of the requirement in art.113 that directors meet together to transact the business of a meeting of directors?  The purpose, in my view, is to ensure that directors taking part in a directors' meeting are able to deliberate together concerning the affairs of the company and ultimately resolve upon action to be taken.  Deliberation in this sense, in my view, involves each director:-

     (a)  being able to know of the matters of fact and opinion articulated by all other directors participating in the meeting; and

     (b)  being free to seek to persuade such other directors to particular views with respect to the matters properly before the meeting.

Cases may arise in which the physical presence of directors in the same room may not necessarily satisfy the apparent purpose of art.113 whereas other arrangements might do so.  A director with a limited hearing capacity, for example, may find it difficult or impossible under circumstances in which a large number of directors is meeting together in a room with poor acoustics, to take part in directors' deliberations.  However, with the assistance of a handset modified for use by the hard-of-hearing on a telephone with a conferencing facility he or she may be able to engage readily in such deliberations.

I agree with the view expressed by Santow J in Wagner v International Health Promotions (admin apptd) that the words "meet together" when ordinarily used in respect of a meeting of directors connote a meeting of minds made possible either by physical proximity or by technology.

In my view, provided that each participating director is able to be aware of the contributions to the meeting made by each other director and to contribute himself or herself to the meeting without significant impediment, it is not of importance that the meeting together of the directors is achieved with the assistance of the telecommunications industry.  I conclude that directors can, generally speaking, meet together by video links or by using telephone conference connections.  A meeting of two directors only can by analogy
of reasoning, in my view, generally speaking, be held using an ordinary telephone connection.

In the circumstances of this case the minutes of the purported meeting disclose no reason for thinking that the two directors concerned were not able to achieve a "meeting of minds", in the sense discussed above, with respect to the issue of the appointment of the applicant as the administrator of the company.  For this reason I am satisfied that his purported appointment was valid notwithstanding that such appointment was made pursuant to a resolution of the board of the company passed at a meeting at which one of two directors was present by telephone.

                             I certify that this and the preceding      pages are a true copy of the Reasons for Judgment of Justice Branson.

                             Associate:

                             Dated:

Counsel for the Applicant    :    Mr M Barrett

Solicitors for the Applicant:    Kelly & Co.

Counsel for the Respondent   :    Mr P Slattery

Solicitors for the Respondent     :    Wallmans

Hearing Date                 :    20 June 1995