FEDERAL COURT OF AUSTRALIA

Ox Operations Pty Ltd v Land Mark Property Developments (Vic)

Pty Ltd (in liq) [2007] FCA 1221

PRACTICE AND PROCEDURE – action commenced in name of company without authority – action not authorised – application to dismiss proceeding – proceedings adopted by all members – effect of ratification

CORPORATIONS – meeting of members – management and administration – powers of members – whether power to ratify legal proceedings  

Corporations Act 2001 (Cth)

Compaction Systems Pty Ltd and the Companies Act, Re [1976] 2 NSWLR 477

Daimler Company Ltd v Continental Tyre & Rubber Company (Great Britain) Ltd [1916] 2 AC 307

Danish Mercantile Co Ltd v Beaumont [1951] Ch 680

Duomatic Ltd, In re  [1969] 2 Ch 365

Duckett v Gover (1877) LR 6 Ch D 82

East Pant Du United Lead Mining Co (Limited) v Merryweather (1864) 2 H&M 254 [(1864) 71 ER 460]

Massey v Wales (2003) 57 NSWLR 718

Newbiggin-by-the-sea Gas Company v Armstrong (1879) LR 13 Ch D 310

S.B.A. Properties Ltd v Craddock [1967] 1 WLR 716

IN THE MATTER OF OX OPERATIONS PTY LTD

OX OPERATIONS PTY LTD v LAND MARK PROPERTY DEVELOPMENTS (VIC) PTY LTD (IN LIQUIDATION)

VID 532 of 2007

FINKELSTEIN J

10 AUGUST 2007

MELBOURNE

IN THE MATTER OF OX OPERATIONS PTY LTD

THE COURT ORDERS THAT:

1.                  The interlocutory process filed on 19 June 2007 be dismissed.

2.                  There be no order as to costs.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE MATTER OF OX OPERATIONS PTY LTD

REASONS FOR JUDGMENT

1                     Paul Egan & Associates are a firm of solicitors.  On behalf of Ox Operations Pty Ltd they filed an application under s 459G of the Corporations Act 2001 (Cth) to set aside a statutory demand that had been served on the company by Land Mark Property Developments (Vic) Pty Ltd (in liq).  The instruction to file the application was given by John Grezos.  Mr Grezos has been, but was not at the time he gave the instruction, a director of Ox Operations.  The action, then, was not properly constituted and Land Mark Property seeks an order that it be dismissed. 

2                     The usual course when a company is improperly made a plaintiff is to stay or dismiss the action and require the solicitor who purported to act for the company to pay the costs:  Newbiggin-by-the-sea Gas Company v Armstrong (1879) LR 13 Ch D 310; East Pant Du United Lead Mining Co (Limited) v Merryweather (1864) 2 H&M 254 [(1864) 71 ER 460]; Duckett v Gover (1877) LR 6 Ch D 82; Daimler Company Ltd v Continental Tyre & Rubber Company (Great Britain) Ltd [1916] 2 AC 307.  The cases also show that the action though brought without authority is not a nullity in the sense that it is void ab initio without the possibility of subsequent ratification.  To the contrary, it is well established that it is possible for the company to ratify the unauthorised act of the solicitor in bringing an action in its name without its actual or implied authority:  Danish Mercantile Co Ltd v Beaumont [1951] Ch 680.  And, because ratification is possible, a practice has developed that when an action is brought without authority it will not be stayed or dismissed forthwith, but the company will be permitted to convene a general meeting or a meeting of its directors to consider whether to adopt the action:  S.B.A. Properties Ltd v Craddock [1967] 1 WLR 716, 722. 

3                     The plaintiff contends that at a meeting of its members (in fact there is only one member) held on 27 June 2007 it was decided that the action should continue.  According to the minutes of that meeting “it was unanimously RESOLVED that [the] actions of Mr John Grezos on behalf of the company in instructing the firm of Paul Egan & Associates on 16 June 2007 [to] defend the winding up application brought against the company by Land Mark Property Developments (Vic) Pty Ltd (in liquidation) be ratified.”  Putting to one side for a moment the effect of this resolution, the defendant says that because the Constitution of the company vests the power of management in the directors there is no power in a general meeting to ratify the institution of legal proceedings.  Reliance is placed on Massey v Wales (2003) 57 NSWLR 718.  There it was held that where the articles of association of a company provided that the business of the company was to be managed by the directors, there was no power in a general meeting to make management decisions or to control or direct the board of directors in the management of the company.  This rule was said to apply to the commencement of legal proceedings just as to any other aspect of management of the company’s business:  Massey v Wales (2003) 57 NSWLR at 730.  But this case is different because ratification (if the resolution constitutes ratification) was by the assent of all shareholders (Ox Group Pty Ltd, a company belonging to Mr Grezos, holds all 100 ordinary shares in the company) and it is well established that if all shareholders signify their assent to a transaction which is within power their decision will be effective provided also the transaction is honest:  In re Duomatic Ltd [1969] 2 Ch 365; Re Compaction Systems Pty Ltd and the Companies Act [1976] 2 NSWLR 477.

4                     Returning to the resolution, the defendant points out that it is not specifically directed to the institution of an action to set aside a statutory demand, but is confined to authorising the solicitors to “defend the winding up application brought against the company.”  Notwithstanding the inelegance in its language, the resolution covers this case.  In the present context an instruction to defend a winding up application authorises the solicitor to take whatever action is necessary to set aside a statutory demand.  After all, a statutory demand is but a precursor to an application to wind up a company and an application to set aside the demand can properly be characterised as a step in the defence of a winding up application. 

5                     Accordingly, the relief sought will be refused.  It is not, however, appropriate for the costs to follow the event.  While the action was brought without authority, the plaintiff did not let the defendant know the action had been authorised until the application to dismiss was filed.  In all the circumstances the costs should lie where they fall. 

Associate:

Dated:         10 August 2007