FEDERAL COURT OF AUSTRALIA

Ngarluma Aboriginal Corporation RNTBC v Ramirez [2018] FCA 1900

ORDERS

THE COURT ORDERS THAT:

1.    The parties are to file draft minutes of orders to give effect to these reasons within 7 days.

2.    The matter be adjourned to a hearing for further directions on a date to be fixed but within 14 days.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

BANKS-SMITH J:

1    In late 2017 there were a number of meetings of the directors of the applicant company, Ngarluma Aboriginal Corporation (NAC). Resolutions were made at the meetings appointing 256 people as members of NAC. In these proceedings, the veracity of those resolutions is called into question. Interestingly, NAC does not seek to defend those resolutions, but rather asks that the Court declare the decisions made at the meetings to be invalid.

2    The respondents are representatives of those who were admitted as members at the meetings. Some had waited many years to have their applications determined. They wish to maintain their membership status and do not want the process revisited for various reasons: the risk of a different outcome if their applications are revisited by a differently constituted board; delay in dealing with their applications again; and denial of access to benefits during that process.

3    The second respondent by cross-claim seeks declarations that the resolutions were validly passed, or, if there were irregularities, then declarations that the resolutions were not invalidated by such irregularities.

Summary of issues

4    Two meetings are of particular importance. The first was held over two days, on 31 August 2017 and 1 September 2017 (September meeting). The second was held on 17 November 2017 (November meeting). The resolutions or decisions in issue were made at those meetings.

5    One of the purported directors at the time was bankrupt and so disqualified from holding that position. There was a requirement that 12 directors hold office but as one was disqualified by bankruptcy, only 11 duly held office.

6    The issues for consideration are as follows:

(1)    As to the September meeting and the November meeting, was the board properly constituted in accordance with its rules despite having only 11 directors holding office rather than 12?

(2)    If not, were the directors still able to act if there was a quorum of directors present at meetings of directors, and were there any limits on the business they could transact?

(3)    As to the November meeting, was there a sufficient number of directors present to comprise a quorum?

(4)    As to both meetings, did any lack of consultation with the appointed Council of Elders otherwise invalidate the resolutions?

(5)    To the extent there were irregularities arising out of the above matters, should such irregularities be validated by the Court?

Parties

7    NAC is a corporation registered under the Corporations (Aboriginal and Torres Strait Islander) Act 2006 (Cth) (CATSI Act). It is governed by the requirements of the CATSI Act, and not the Corporations Act 2001 (Cth). It is the prescribed body corporate for the Ngarluma People within the meaning of the Native Title (Prescribed Bodies Corporate) Regulations 1999 (Cth) (PBC Regulations). It holds native title on trust for the Ngarluma People from two determinations (known as the Ngarluma-Yindjibarndi Determination, as made in Daniel v State of Western Australia [2005] FCA 536 (Nicholson J) as amended on appeal by Moses v State of Western Australia [2007] FCAFC 78; (2007) 160 FCR 148 (Moore, North and Mansfield JJ); and the Townsite Determination, made in Samson on behalf of the Ngarluma People v State of Western Australia [2015] FCA 1438 (McKerracher J)).

8    NAC's evidence was that it has entered into a number of agreements to provide benefits for the Ngarluma people, but the monetary aspects of the benefits are distributed by the Ngarluma Benefits Management Structure (BMS), which includes the Ngarluma Charitable Trust and the Ngarluma Direct Benefits Trust. The trustee of the trusts is a separate entity, Ngarluma Tharndu Karrangu Maya Ltd (NTKML). Therefore, whilst NAC does not provide financial benefits directly to its members, membership may entitle members to certain payments under those trusts. According to its general financial report for the year ended 30 June 2016 provided to the Office of the Registrar of Indigenous Corporations (ORIC), NAC had for that year a total income of $8,123,303; total grants of $3,381,840; total expenditure of $9,650,130; and 15 employees.

9    The first respondent and second respondent are representatives of different groups of persons who are identified in a schedule. The persons are listed in Part A or Part B of the schedule. They are parties to these proceedings in accordance with r 9.21 of the Federal Court Rules 2011 (Cth) which provides for representative proceedings.

10    The first respondent and Part A represented respondents were accepted as members of NAC at the November meeting. The second respondent and Part B respondents were accepted as members of NAC at the September meeting and accepted again at the November meeting.

11    It is therefore said that the respondents and those in the Part A and Part B schedules share the same interest in the outcome of the November meeting, and that in addition the second respondent and the Part B respondents share the same interest in the outcome of the September meeting.

General - the Constitution and the CATSI Act

12    NAC is governed by the NAC Constitution (also referred to as its rule book) (Constitution).

13    The CATSI Act is also relevant. Chapter 6 ('Officers') includes in Pt 6-2 provisions dealing with internal governance aspects of directors, including their appointment and cessation. Some of the internal governance rules are replaceable, allowing corporations to tailor their internal governance framework to their particular circumstances. Other internal governance rules relating to directors are substantive provisions of the CATSI Act (see generally Sandy v Yindjibarndi Aboriginal Corporation RNTBC [No 2] [2016] WASC 75; (2016) 306 FLR 205 at [21] (Le Miere J)).

14    The interpretation provisions of the Constitution provide that the replaceable rules set out in the CATSI Act apply to NAC only to the extent that they are not inconsistent with (relevantly) the Constitution. Section 60-1 to s 60-20 of the CATSI Act sets out in some detail the operation of the replaceable rules provisions.

15    Section 60-10 of the CATSI Act provides that the Constitution operates as a contract between the corporation and each member.

The NAC Constitution

16    The following terms of the Constitution are of particular relevance in this application.

Objects

17    The objects of NAC relevantly are set out in r 3 as follows:

3(a)    Subject to sub-rule 3(c), the objects for which the Corporation is established are to:

(i)    provide direct relief from poverty, sickness, suffering, misfortune, destitution or helplessness among Aboriginal people especially the Common Law Holders;

(ii)    be and to perform the functions of a Prescribed Body Corporate, for the purpose of being the subject of a determination under section 56 and 57 of the Native Title Act;

(iii)    be and to perform the functions of a Registered Native Title Body Corporate for the purpose of being the subject of a determination under section 57 of the Native Title Act;

(iv)    protect, preserve and advance the traditions, laws, languages, culture and customs of Aboriginal people, especially the Common Law Holders, and

(v)    hold title to any Vested Land.

(b)    Without limiting the generality of sub-rule 3(a), the Corporation may:

(i)    advance and promote the well being of Aboriginal people, especially the Common Law Holders;

(ii)    provide environmental, social, economic and cultural benefits to Aboriginal people especially the Common Law Holders;

(iii)    maintain, protect, promote and support the culture, native title traditions and customs, economic development, interests and social progress of Aboriginal people, especially the Common Law Holders;

(iv)    support and provide education, training and employment for Aboriginal people, especially the Common Law Holders; and

(v)    support and provide housing for Common Law Holders.

(c)    In carrying out its objects, the Corporation shall ensure no portion of its funds or property are paid or applied directly or indirectly by way of dividends, bonus or otherwise howsoever by way of profit to any Member, except for the payment in good faith of reasonable and proper remuneration to any Member, officer, servant, agent, consultant, contractor or employees of the Corporation for, or in return for, services actually rendered to the Corporation.

Appointment of directors

18    Rule 9 is headed 'Directors of the Corporation'.

19    Rule 9.1 is headed 'Numbers of Directors' and provides that:

There shall be a Board of Directors comprising six women and six men.

20    'Board of Directors' is a defined term, defined as:

… means the people elected or appointed according to rule 9 to manage the affairs of the Corporation in accordance with the Native Title Act, [the] PBC Regulations, the [CATSI Act] and this Constitution.

21    'Director' is also defined:

… means a person who holds office as a member of the Board of Directors of the Corporation according to rule 9.

22    On its face, the requirement in r 9.1 of 12 directors is consistent with s 243-1 and s 243-5 of the CATSI Act, which provide respectively that a corporation must have a minimum of three directors and a maximum of 12 directors.

23    Rule 9.4.1 provides that NAC may appoint a person as a 'Director' by resolution passed in 'General meeting'. 'General meeting' is defined to include a special general meeting. A director may call a general meeting (r 7.3.1).

24    Rule 9.4.3 is important in the context of the relevant issues, and provides for the appointment of directors by the directors. On its face it deals with appointments to fill casual vacancies, but it is discussed in detail below.

25    'Directors' meeting' is defined and is said to refer to a meeting of the Board of Directors held according to r 12.

26    A person who becomes bankrupt is disqualified from acting as a director by Pt 6-5 of the CATSI Act. By r 9.7 of the Constitution, where such disqualification applies, the person ceases to be a director.

Quorum at a Directors' meeting

27    Rule 12 deals with directors' meetings.

28    Rule 12.3 provides that:

The quorum for a Directors' meeting is a majority of the Directors, and that quorum must be present at all times during the meeting.

29    This provision mirrors s 212-20 of the CATSI Act.

Becoming a member

30    The following rules prescribe the relevant process to become a member of NAC:

5.2.1    How to become a Member after registration

A person becomes a Member if:

(a)    the person wants to become a Member and applies in writing;

(b)    the person is eligible for Membership;

(c)    the Directors accept the application; and

(d)    the person's name is entered on the Register of Members.

5.2.2    Who can apply to become a Member (eligibility for membership)

(a)    The membership of the Corporation shall be open to adult persons who are those people known as the Ngarluma People who hold in common the body of traditional law and culture governing the Determination Area and who identify as Ngarluma and who, in accordance with their traditional laws and customs, identify themselves as being members of the Ngarluma language group.

(b)    If a person has, within the past 5 years, been removed as a Member from the Corporation, they are not eligible for membership in accordance with sub-rule 5.2.2(a).

5.2.3    Membership application

(a)    A person (the Applicant) who wants to become a Member must apply to the Corporation.

(b)    The application must be in writing.

5.2.4    Deciding Membership applications

(a)    The Directors will consult with the Council of Elders in order to consider and decide membership applications.

(b)    Applications will be considered and decided in the order in which they are received by the Corporation.

(c)    The Directors must not accept an application for membership of the Corporation unless the Applicant:

(i)    applies according to rule 5.2.3; and

(ii)    meets all the eligibility for membership requirements under rule 5.2.2.

(d)    In deciding whether to accept an application, the Directors may consider whether the Applicant has, at any time, acted contrary to Law and Custom.

(e)    The Directors may refuse to accept a membership application even if the Applicant has applied in writing and complies with all the eligibility requirements.

(f)    If the Directors refuse to accept a membership application, they must notify the Applicant in writing of the decision and the reasons for it.

5.2.5    Appeal against refusal to accept application

If the Directors refuse to accept a membership application, the Applicant is entitled to appeal the decision in the following manner:

(a)    the Applicant must write to the Directors setting out the basis on which he or she considers that he or she is a Ngarluma Person; and

(b)    the Directors must, at the next General meeting, put a resolution before the Members to decide whether or not to accept the application.

Cancelling membership

31    Rule 5.7 provides that the directors may by resolution cancel the membership of a member if the member is not eligible for membership or has ceased to be eligible for membership.

The Council of Elders

32    The evidence was that there had been a Council of Elders in place since 2010 and that it had 28 members as at 2017.

33    Rule 8 of the Constitution provides for the establishment of the Council of Elders. It states that NAC must establish the Council of Elders comprising senior Ngarluma People and that it will 'make recommendations and provide guidance' to NAC on various matters, including law and custom, heritage, language and (relevantly), the identification of the Ngarluma People. It does not provide a minimum number of members required to constitute the Council of Elders, nor the number required to constitute a quorum of the Council of Elders.

34    Rule 8(b) states that the Council of Elders' composition, role and functions and the manner in which they conduct their meetings are described in sch 3 to the Constitution.

35    Schedule 3 relevantly provides as follows:

S3.1    Functions of the Council of Elders

(a)    The functions of the Council of Elders shall include, but not be limited to:

(i)    making recommendations and providing guidance to the Corporation on matters including, but not limited to:

A.    Law and Custom;

B.    Native Title;

C.    Country;

D.    Heritage;

E.    Environmental issues;

F.    Language; and

G.    Identification of the Ngarluma People;

(ii)    developing policy in relation to the above matters;

(iii)    consulting with the Directors on applications for membership of the Corporation;

(iv)    advocating and promoting the maintenance of language and culture amongst the Ngarluma People;

(v)    assisting the Directors to develop the priorities and vision of the Corporation and any strategic plan for the Corporation;

(vi)    assisting in the resolution of Disputes in accordance with rule 19.4.

(b)    The Directors may refer any matters referred to in rule S3.1(a)(i) to the Council of Elders for consideration and guidance.

S3.2    Composition

(a)    The Council of Elders comprises senior Ngarluma People who are:

(i)    recognised by the Ngarluma People under Ngarluma Law and Custom as holding traditional decision making authority and knowledge regarding Ngarluma law and culture; and

(ii)    at least 50 years of age.

(b)    The Directors will determine, in consultation with the senior Ngarluma People, and having regard to Law and Custom:

(i)    the persons who comprise the Council of Elders from time to time;

(ii)    the number of persons sitting on the Council of Elders; and

(iii)    the term upon which a person will sit on the Council of Elders.

S3.3    Duties of the Council of Elders

The members of the Council of Elders have the following duties:

(a)    a duty of care and diligence;

(b)    a duty of good faith;

(c)    a duty of disclosure of material personal interests; and

(d)    a duty not to improperly use their position or information.

S3.4    Meetings of the Council of Elders

S3.4.1    Frequency of meetings of the Council of Elders

(a)    The Council of Elders shall meet quarterly, or more often if necessary for the resolution of particular issues.

(b)    The Directors shall use reasonable endeavours to meet with the Council of Elders at least quarterly to brief the Council of Elders on the activities and issues involving the Corporation.

S3.4.2    Calling and giving notice of meetings of the Council of Elders

(a)    The Council of Elders will normally determine the date, time and place of each meeting of the Council of Elders at the previous meeting.

(b)    When the Directors call a meeting of the Council of Elders, it shall be called by giving reasonable notice individually to each member of the Council of Elders.

(c)    The notice must state:

(i)    the date, time and place of the meeting;

(ii)    the general nature of the business to be conducted at the meeting; and

(iii)    any proposed resolutions.

(d)    The date, time and place for a meeting of the Council of Elders must not unreasonably prevent a Council of Elders member from attending.

36    I note that sch 3 also contains provisions that require written determinations to be provided by the Council of Elders in some scenarios, but the parties do not contend that such requirements apply to consultation about membership with the directors.

37    Rule 12.2(e) of the Constitution provides that:

The Directors may invite the Council of Elders to attend [a] Directors' meeting.

The events

38    It is accepted by the parties that on 8 November 2016, Jeannie Churnside, then a director of NAC, became bankrupt and so was disqualified from continuing as a director of NAC.

39    That left NAC with 11 directors, five women and six men, until 20 November 2017, when the appointment of another four directors expired due to effluxion of time. New directors were subsequently appointed and there are now apparently 12 directors. However, at the time of all the meetings of directors relevant to this application there were only 11 directors holding office.

40    Those limited and uncontested facts, together with the relevant provisions of the Constitution, provide the basis for determining many of the issues as to capacity of the board and quorum. However, the allegation as to lack of consultation with the Council of Elders and the nature of the relief sought by the cross-claim requires consideration of events over some period of time.

Evidence

41    The applicant relies upon three affidavits affirmed by Amanda Mowarin. The first deals with the meetings. Ms Mowarin was a director and secretary of NAC from 21 November 2015 to 21 November 2017, and said she was appointed as a 'casual director and secretary' on 27 February 2018. She had access to NAC's books and records. One of the attachments to the first affidavit is a schedule of applications considered at the September meeting. Her second affidavit provides an updated version of that schedule. Ms Mowarin's third affidavit attaches copies of membership applications lodged with NAC relating to the Ramirez family dating back to 2008 and copies of correspondence with them. There are also other various membership applications attached, and a copy of a letter to NAC from ORIC.

42    The applicant also relies on a solicitor's affidavit that attaches a copy of a constitution for a separate Aboriginal corporation, referred to as the Ngarluma and Yindjibarndi Foundation Limited (NYFL). It also attaches correspondence with the administrators of NYFL, a register which purports to list Ngarluma members and a register that lists Yindjibarndi members.

43    I will return to the affidavits filed on behalf of NAC in some detail.

44    Notably, there was no evidence from any elder or from any other director of NAC involved in the meeting process.

45    The first respondent relied on an affidavit sworn by Victoria Hovane. Ms Hovane deposed to being a member of NAC and affected by the application to remove members from the register. Ms Hovane explained that she was accepted as a member of NYFL in 1996 before separation of the two native title groups, and was accepted on the basis she was Ngarluma. She deposed to spending some two years following up an application lodged with NAC, and that she was told in September 2017 that her application was accepted. She noted the updated register of NAC members was accessible through ORIC in November 2017, and in December 2017 her and her children received distributions from the NTKML trust. She stated that she attended an annual general meeting of NAC on 10 February 2018 (AGM) and nominated to become a NTKML traditional owner director.

46    She deposed to abuse and shouting that occurred at the meeting, directed, she said, by old members to the new members, and that the meeting was eventually closed.

47    Ms Hovane said that in April 2018 she became aware through a NAC post on Facebook that payments to members were suspended and that it had received counsel's advice that membership acceptances from November 2016 should be reconsidered. She later received a letter telling her that her membership was invalid and that NAC intended to remove her name from the register.

48    The first respondent also relied on affidavits sworn by Janice Ramirez and Gary Ramirez. Ms Ramirez deposed to genealogy research undertaken to assist in establishing that her family is Ngarluma, the long waiting period after the lodgement of their applications, that she was told by letter dated 17 October 2017 that her application had been referred to the Council of Elders for advice and recommendation, and that she was informed by letter dated 23 November 2017 that it had been approved.

49    Ms Ramirez deposed to having attended a 'meet and greet' for new Ngarluma members held in Port Hedland in December 2017 and that she was given a handbook that described the financial benefits for members. Ms Ramirez deposed to having made a request for assistance for her son to receive a laptop for school, a request that was accepted, and that she received what she understood to be a standard Christmas payment of $985 in early January 2018.

50    Ms Ramirez then deposed to a similar process as that addressed by Ms Hovane whereby she found out in April 2018 that NAC was proposing to reconsider the NAC applications accepted since November 2016, and that she was informed by the NAC board that her membership was invalid.

51    Mr Ramirez's affidavit addresses a similar process of lengthy delay, gathering of information relevant to his application, providing information to NAC as to his line to apical ancestor Carrie Francis, indications of acceptance from NAC, a letter from NAC confirming acceptance of his membership in November 2017 and a payment of 'Christmas money' of $861.78. He also attended the AGM and his evidence was to a similar effect to that of Ms Hovane and Ms Ramirez, in that there was tension and purported displays of anger and some abuse at the meeting directed at new members.

52    The second respondent relies on the affidavit of Ms Maxine Brahim. Ms Brahim deposed to her ancestry, her application, her identification as Ngarluma, the delay in processing her application, the manner in which she was informed by NAC of her acceptance as a member and that she was then informed that her membership was invalid. She deposed to being concerned about re-starting a process of applying to be a member and that she may be asked to repay the benefits she has received.

53    The information provided by the respondents as to the application process and genealogy was provided in order to establish standing and prejudice, but I have also found it to be useful background information about NAC's approach to considering applications (at least at the time).

54    At this point it should be made clear that no party suggested I was to determine the position as to any of the particular applications on their merits and whether or not they ought to have been accepted by NAC. That is not the nature of this application.

Meeting in May 2017 with Council of Elders

55    The only evidence as to the meetings is that provided by Ms Mowarin and the documents attached to her affidavits. She was not cross-examined (no party sought to cross-examine any deponent).

56    Ms Mowarin attended a meeting held in May 2017 with seven other NAC directors, the chief executive officer of NAC (Mr Neil Fong) and the chairperson of NTKML (May meeting). Twenty-six elders from the Council of Elders attended the meeting. Ms Mowarin said that six membership applications were presented to the elders for advice. Ms Mowarin does not identify the applicants and said that the elders were not presented with all the outstanding applications. She said most discussion was about a particular apical ancestor, Woodbrook Mary. She said that 'the elders were all growling about membership as they felt the board had previously removed them from having input into the decision making processes'. Ms Mowarin does not disclose what, if any, advice was given by the elders about the six applications and said that no resolution was passed at that meeting.

57    Ms Mowarin also said that two of the elders said the issue of memberships should be dealt with by the board. There is no suggestion the board accepted or acted upon any such statement from the two elders (indeed the board later resolved to refer certain applications to the Council of Elders as set out below) and I do not consider anything turns on such evidence.

58    Ms Mowarin said she does not recall any minutes of the meeting being circulated to the board. Subsequently, NAC provided her with a draft set of minutes for the purpose of preparing her affidavit and she said the draft reflects her recollection of the meeting. The redacted draft was before the Court and is consistent with the evidence outlined above. The minutes do not add anything to an understanding of what happened at that meeting. Ms Mowarin says that to the best of her knowledge and belief the Council of Elders did not meet again in 2017 and it was not asked to consider the membership applications the subject of the application to Court.

The September meeting (two days)

59    Ms Mowarin said that prior to the September meeting, she provided copies of all the outstanding membership applications to Ms Wall, the executive assistant to Mr Fong. Ms Wall prepared a spreadsheet listing the applications and populated by information from the applications. Ms Mowarin and another director, Mr Mervyn Lockyer, had been nominated as the directors to consider membership applications (the meaning of this evidence is somewhat unclear - Ms Mowarin does not suggest that the task as a whole was delegated to her and Mr Lockyer, and such a finding is not supported by other evidence to which I will return - and so I assume that they were nominated to manage the process with the board).

60    Ms Mowarin said she attended the meeting in her capacity as a director. She said a board pack, comprising the spreadsheet of applicants and a list of apical ancestors, was provided to the directors. The list of apical ancestors is headed 'Ngarluma Aboriginal Corporation Membership Review September 2014 by Anthropos (WA) Pty Ltd' and in addition to listing apicals, lists certain family lines.

61    The spreadsheet is headed 'All outstanding NAC membership applications in order of application received - last updated 22/08/2017'. The columns of the schedule are populated by information as to the date of application, name of the applicant, date of birth, their mother, father, grandparents on their mother's side and grandparents on their father's side.

62    In total, there were ten directors who attended the meeting, although the number reduced to nine on the second day. Five others were present, including the operations manager and Mr Fong. Ms Mowarin said that the board considered the membership applications on the second day of the meeting. She stated that:

I recall membership being considered in the following manner:

(a)    the board were each given a spreadsheet with the names of each applicant in their board pack;

(b)    each name was called out one by one by Kylie Agale [chair of the meeting] and Mervyn Lockyer;

(c)    I marked my spreadsheet with tick or cross for my own records. I observed all of the other directors and [Ms Wall] marking their spreadsheet. The spreadsheet presented on the screen was not being noted with outcomes;

(d)    Kylie Agale and Mervyn Lockyer spoke for different mobs and said they are descendants of this person;

(e)    Tyson Mowarin also spoke for some other mob that the other Directors didn't know;

(f)    there was a resolution, but everybody was arguing about the process; and

(g)    there [were] about 80 memberships referred to the Council of Elders because Directors did not know people or their connection.

63    Minutes of the meeting were recorded by Ms Wall and the minutes were presented and adopted as a true and accurate record 'as amended' at a board meeting of 29 September 2017. Ms Mowarin said that she does not recall the amendments to the minutes but usually they would be only typographical errors from the draft.

64    A redacted copy of the minutes was before the Court. Relevantly, the minutes note that all applications were presented to the board as well as the spreadsheet identifying the criteria of all outstanding NAC memberships in order of the applications received, dating back to 2010. A list of apicals is included. The minutes include three tables (said to be white, blue and yellow respectively). The first table is described as the NAC membership applicants who were accepted and lists their date of application, name, date of birth, mother and father. That table includes the second respondent. The minutes then note that 'the NAC board went through the applications and those in the table were accepted'. There is then a record of a resolution (resolution 10) noted as 'All in favour' as follows:

The NAC board resolve to accept all applicants as the new members to Ngarluma Aboriginal Corporation as indicated in the white table as above.

65    There then follows a second table, said to be blue. It lists 10 applicants and notes that their applications were declined. The minutes record that the applicants were rejected as further information is required to determine the outcome of their application. The resolution recorded (resolution 11) was that the NAC board declined the applicants in the blue table and that the NAC secretary would seek more information to determine the outcome of membership applications which would be presented back to the NAC board for acceptance. The minutes record that resolution as 'All in favour'.

66    The third table, said to be a yellow table, includes a list of about 80 applicants with a description that they are to be referred to the 'Elders Council' for their determination. The resolution recorded is that 'the NAC board will refer the yellow table to the Elders Council for their determination'. Again, the minutes record that resolution as 'All in favour'. The name of the first respondent appears in this list.

67    The three resolutions were recorded again at the end of the minutes in an 'action/resolution conclusion table'. It is also noted that the secretary (Ms Mowarin) would work with the NAC vice chair (Mr Lockyer) to respond to the applicants in accordance with the tables.

68    Ms Mowarin signed off on letters to the applicants on 17 October 2017 informing them of the outcome of the board's consideration of membership applications. A draft of the standard letters had been circulated to board members before they were finalised and distributed. There were two types of letters. Ms Mowarin said that acceptance letters were sent to 167 applicants, being those persons recorded in the minutes, and referral letters were sent to 84 applicants, being those recorded in the minutes as being referred to the Council of Elders for consideration. The acceptance letter said, relevantly, that NAC was pleased to inform the recipient that their membership application has been approved and staff are in the process of updating the ORIC membership list.

9 November meeting (prior to main November meeting)

69    Ms Mowarin said that on 9 November 2017 she attended a board meeting where it was decided that the board should revisit the membership applications because the directors' spreadsheets had different outcomes next to people's names. I take this to mean that there were some inconsistencies, but it is important to recall that by this time the minutes of the September meeting listing the names of the accepted applicants had been approved by the board, and Ms Mowarin, who kept notes during the meeting on her spreadsheet, had sent out letters. Under the Constitution the signed minutes comprised evidence of the proceedings (r 16.2(j)).

70    According to Ms Mowarin, at the 9 November 2017 meeting the board decided that the elders should come and help the board decide on the membership applications. There were two elders on the board (Nellie Connors and Violet Samson) and Mr Fong suggested that they suggest which elders should be invited. Ms Connors and Ms Samson suggested a list of nine names.

71    Ms Mowarin said she 'understood' Ms Abby Phillis was present at the meeting to take minutes. Ms Mowarin said that minutes of that meeting have never been presented to a board meeting but she located a draft copy on the NAC server. A redacted copy of those draft minutes was before the Court and runs for some 10 pages. There is a heading 'Brief discussion about membership occurs', and Mr Fong is quoted as saying:

We need to revisit the membership decisions as it appears that different directors have different ideas about what was approved and what wasn't approved. It is now turning into a concern as no one is clear about who was or wasn't approved.

72    Under a heading 'membership', the following is included:

A series of 'selection criteria' was developed to assist with finalising the outstanding membership applications.

Applications are accepted as 'yes' if the following criteria are met:

•    Board members vouch for applicants who are known

•    where vouched for, applicant needs to be identified in minutes

•    Sufficient evidence provided (family tree)

•    Birth certificate.

Applications will be refused in the following cases:

•    Person is not known

•    There is no evidence provided

•    Applicant is under 18

•    A person is adopted

•    are offered associate membership.

Where there is disagreement [the] application is considered by Elders for final decision.

Decision was made to bring the Elders and the Board together next week to finalise the membership applications.

73    The draft minutes then record a list of ten elders to be invited.

74    Ms Mowarin stated in her affidavit that she does not consider the draft minutes to be an accurate recording of the meeting 'as the minutes have not captured some critical points discussed in the meeting'. Ms Mowarin did not explain what those critical points were. She did not say whether the parts that refer to membership that I have included above are incorrect. I note that the lists of elders recalled by Ms Mowarin and the list of elders included in the draft minutes coincide with only two exceptions: 'Violet' is included in the minutes and is presumably the director Violet Samson; and Jean Lockyer is included in the minutes whereas Jean McKay is listed in Ms Mowarin's affidavit.

November meeting

75    Ms Mowarin then addressed the November meeting (17 November 2017) in her first affidavit. She said that she observed Ms Phillis in the meeting and it was her understanding that Ms Phillis was present to record the minutes of the meeting, but that she recalled she was not present at the meeting 'for a substantial period of time'. What that means is not explained. Whether Ms Phillis was present during the membership discussion is not stated. Ms Mowarin stated the minutes of the meeting have never been presented or ratified but that she has located a draft copy on the NAC server. Again, Ms Mowarin said that she does not consider the draft minutes to be an accurate recording of the meeting 'as the minutes have not captured some critical points discussed in the meeting'. Ms Mowarin does not explain what those critical points were or point to anything in the draft minutes which is incorrect.

76    Ms Mowarin listed seven directors who she says were present at the November meeting. She also stated that four elders were present in addition to the two elders who were also directors (Violet Samson and Nellie Connors). Ms Mowarin said that she recalls being told at the board meeting that the other elders suggested at the previous meeting had been invited but either were unavailable or did not respond to the invitation. Counsel for NAC clarified at the hearing that one of the four people referred to as elders by Ms Mowarin in fact was not an elder on the Council of Elders, so there were only three elders present in addition to the two directors.

77    Ms Mowarin said that Mervyn Lockyer did not attend the board meeting until after lunch and was present for only a portion of the time that membership issues were considered. She said that when Mr Lockyer arrived, Richard Walker left the meeting. She stated that it was decided to look at all of the applications again as there had been so much back and forward between directors as to who had been accepted.

78    Ms Mowarin said that at the meeting there was an Excel spreadsheet of names projected on the screen in the boardroom. The spreadsheet presented was a colour coded version of the original spreadsheet and included the names of all of the applicants who were considered at the September meeting. Ms Mowarin obtained a copy of the spreadsheet some time after the meeting for her own records. Ms Mowarin says that as facilitator, Mr Fong called out the names on the spreadsheet for the directors and elders to consider. NAC had also received some new applications that were not previously considered. Mr Fong said that he was one of the new applicants and he then discontinued facilitating the meeting and Mr Lockyer took over. Ms Mowarin says that to the best of her recollection, Mr Lockyer read from the application forms and summarised the relevant information for the board and elders to consider.

79    Ms Mowarin said that the Excel spreadsheet was discussed at the meeting and was marked up to record the outcome. She says that after each person's name was discussed 'we never voted on it but the outcome was recorded based on general consensus'.

80    The draft minutes are as follows (without edits but with some redactions):

Violet Samson welcomed everyone and indicated that this issue needed to be sorted out as has been going on for too long.

General discussion occurred on what was required to happen and whether there was enough details on the applications to make a decision on the applications. Richard indicated that the majority of the applications had been considered at previous meetings but that not everyone agreed with what had occurred and so it was decided at the previous board meeting to bring in some of the Elders to help determine whether the applicants had connection to the Ngarluma country.

CEO was asked to provide some background so everyone was clear and at the same understanding. Neil indicated the following:

•    Some membership applications outstanding since 2009;

•    Approximately 300 applications to be considered;

•    At the St Luke's Meeting, general consensus on the majority of applications but concern about the applications related to the Ramirez family and some of the Lockyer's;

•    Considered that NAC was breaching its duties that decision not made on the applications and in particular that approvals had been given to applicants who had applied later than the older applications;

•    The argument that the [redacted] family should not be accepted because they were previously part of the Wong goo too Claim needed to be revisited as they should be eligible;

•    At a previous meeting, Board had agreed to decisions but refuted later so it was needed to capture who has vouched for applicants.

A clean spread sheet of all the applications was put up on the screen and it was requested that the Board members with instruction from the Elders to indicate whether they agreed or not. Everyone present agreed that they would just go through the list and unless objections were raised that they would just indicate yes or no and if need to seek additional information.

As everyone went through the spreadsheet, Jenni Smith raised objection that the [redacted] family should not be admitted because of the anger and grief they had caused. Group discussed at length and while every conceded to the anger and hurt, determined that they were Ngarluma people and that past grievances should be put aside. This was not extended to [redacted].

Richard Walker was very clear in his position that if applicants could prove clear connection to Apicals then the Board should not be rejecting as they were Ngarluma.

•    [redacted] - rejected as not 18, to apply again when over 18

•    [redacted] - More information as not known and application did not show connection clearly

•    [redacted] required more information

•    Neil Fong application - as CEO in the room, he indicated that while he was not part of the decision, was happy to leave so open discussion could occur. Persons present felt unnecessary as application had a clear connection and genealogy was clear cut to a named apical.

•    [redacted] - more info and request that a family tree be provided

•    [redacted] - thought that more information was required

•    [redacted] - more info/family tree

•    [redacted] - more info required

•    [redacted] - more information

•    [redacted] - more info required

Two new applications tabled by Jean Mackay

•    [redacted] and her son [redacted] and was vouched for by her and agreed to by the remainder present

Resolution: This list on the spreadsheet is agreed to by the elders present with a recommendation for the NAC board to approve.

This resolution supersedes all other previous resolutions on the matters of membership applications

Moved by Nelly Connors

Seconded by Violet Samson

Everyone in favour

No objections

81    As can be seen, the draft minutes reflect quite closely Ms Mowarin's evidence as to what occurred at the meeting, and any differences to which she alluded are not obvious.

After the November meeting

82    On 12 December 2017 Ms Mowarin signed acceptance letters to the 256 approved applicants. The pro forma letter is in the same terms as that sent to purportedly approved applicants in October 2017. There is no suggestion by Ms Mowarin that she considered the letters she signed were inaccurate or that they were inconsistent with the approvals made at the November meeting.

83    Ms Mowarin stated that on 12 December 2017 the names of new members were submitted to ORIC by NAC's administration team and on 14 December 2017 the register of members was updated to add the names of the members accepted from the September meeting and the November meeting.

84    On 19 December 2017 NAC issued notices of the AGM to members. Ms Mowarin deposed to having attended the AGM and said that many of the newly approved applicants attended the AGM. She said a number of former members began questioning the processes that had been undertaken in order to accept the new members. The discussion escalated to the point that members were shouting abuse at each other and the board. Accordingly, the meeting was closed because of disruptive behaviour and remains adjourned. Ms Mowarin did not refer to the 'meet and greet' meeting addressed in the respondents' evidence.

85    On 3 April 2018 NAC's lawyers wrote to the Myer Family Company Limited as custodian trustee of the BMS, informing it that it had received advice that the application decisions made in September 2017 and November 2017 were invalid. The letter stated that NAC would reconsider all the applications and that it had not yet informed the new members they were not validly accepted and, subject to the views of the trustee, it did not intend to do so pending reconsideration. The letter stated that if NAC formed a view on reconsideration that a new member should not be admitted, it would then apply to Court to rectify the register.

86    On 5 April 2018 the custodian trustee responded, stating that it considered the members should be informed of the advice that had been received, and the community should be advised of the effect on their ability to apply for funds until the register is updated. The custodian trustee considered it was not appropriate to make distributions based on a register it was being told was incorrect.

87    On 27 April 2018 NAC sent a letter to those members approved at the September and November meetings. The letter stated that in accordance with legal advice from a senior barrister regarding membership resolutions adopted by the NAC directors at the meetings, the decisions were invalid for two key reasons, being that:

(1)    at the relevant time NAC had less than the mandatory 12 directors; and

(2)    to pass resolutions NAC was required to have a minimum of seven directors present for the whole meeting,

and informed applicants that the decision to accept their membership was invalid.

88    A large number of letters from recipients of that letter were before the Court, indicating, as one would expect, their objection to the decision to treat their memberships as invalid or to cancel their membership.

89    To summarise the current position, it appears that the number of directors has been increased to 12 (how they were appointed is not disclosed) and the AGM from February 2018 remains adjourned. According to ORIC (letter dated 4 April 2018), the AGM was required to be held by 30 November 2017.

90    Finally, I note that various communications between NAC and ORIC are in evidence, which disclose NAC's requests that ORIC vary the register. Relevantly, NAC states that the member removal provisions in the Constitution do not apply because the members were never properly members of NAC.

Finding as to resolution at November meeting

91    Before moving to the principles, I address one particular matter. A question arose as to whether the decision made at the November meeting was a resolution of the directors. The question arose because the applicant says no weight can be attributed to the draft minutes of the meeting and because Ms Mowarin said that 'After each person's name was discussed we never voted on it but the outcome was recorded on general consensus'. The second respondent submitted that Ms Mowarin does not go so far as to say there was no resolution and it is open on the evidence to find that a resolution was passed.

92    A resolution made at a board meeting is an agreement of a particular kind that may be proved in the same way as any other agreement: McLean Bros & Rigg Ltd v Grice (1906) 4 CLR 835 at 847.

93    It seems to me that Ms Mowarin's statement is evidence of what happened as each name was called out. Her evidence is to the effect that there was no separate vote with respect to each person. It does not suggest no resolution was passed at the end of the discussion. Ms Mowarin's affidavit attaches the draft minutes. She does not say the draft minutes wrongly record that a resolution was made or that they wrongly record that there was unanimity. If that were the case, the error would seem to be of such significance that she would have commented on it. The fact that there was general consensus is consistent with a resolution being passed. The fact Ms Mowarin proceeded to send letters to all of the applicants that reflected the outcome of the meeting is consistent with a resolution having been passed. Otherwise, her authority to do so would be open to question. Taking into account those matters, I find that a resolution was passed (subject to the questions of competency/quorum dealt with below).

Some principles

Deficiency in number of directors

94    The effect of the definitions and the terms of r 9.1 is that the Constitution provides that the number of directors elected to manage the affairs of NAC and comprising the board shall be 12.

95    It is possible to distil three common scenarios from the authorities, each reflected in early case law.

96    The first category are cases where the articles or constitution provide for a minimum number of directors and there is no rule that authorises continuing directors to act. In Re Alma Spinning Company (Bottomley's Case) (1880) 16 Ch D 681, the articles provided that the business of the company should be conducted by not less than five nor more than seven directors. The articles also provided that the directors might determine the quorum necessary for the transaction of business. The number of directors was reduced by death and insolvency to four, and those four directors purported to pass a resolution forfeiting certain shares of Mr Bottomley. Mr Bottomley claimed the forfeiture was invalid and Jessel MR agreed, finding that where the articles provide that the business of the company shall be conducted by not less than a specified number of directors, the words are imperative and not directory, and consequently the resolution made by four directors only was invalid. Jessel MR reasoned that the shareholders had entrusted the management of their business to a certain number of persons, and not to any other number. It was not to the point that the directors had fixed three of their number as a quorum. Nor did 'inconvenience' attract a different outcome. The directors could have called a special meeting to respond to the reduction in number.

97    The second category is where the number of directors falls below the required minimum, but there is a provision that empowers the continuing directors to act. In Re Scottish Petroleum Company (1883) 23 Ch D 413, the articles provided that the number of directors should not be less than four, nor more than seven; that two directors were to form a quorum; and the continuing directors might act notwithstanding any vacancy in the board. Four directors were appointed but two of them subsequently resigned. At a directors' meeting the remaining two proceeded to allot shares. The allottee sought to have his name removed from the register. It was held that the allotment by the two directors was valid in view of the provisions of the articles empowering continuing directors to act despite the insufficiency in the number of appointed directors.

98    A third category is that where in contrast to a diminution in number, the minimum number of directors fixed by the articles was never appointed. In Re Sly, Spink & Company [1911] 2 Ch 430, the articles provided for not less than four nor more than eight directors, and a quorum of three directors. At a meeting of three directors an allotment of shares was made although the minimum number of directors prescribed had not yet been appointed. Another article gave the directors power to act notwithstanding vacancies in their body, but it was held that such an article applied only where the actual number of directors was reduced below the minimum because of proper and reasonable cause. This was not a case of a reduction in directors but of a board that was never properly constituted. The allotment was held invalid. The rationale was explained by Neville J as follows (at 435-436):

The question was this: whether a board of three could under the regulations of this society legally allot shares. If they could not, then the shares were illegally allotted, because there never was a board consisting of more than three. Certain difficulty arises in the construction of the articles of association in this way. Under the head of 'directors' Article 79 provides that 'The number of directors shall not be less than four or more than eight'. It is not said, as it is in some cases, that the number of directors shall be 12 or any fixed number; but it gives the minimum number of directors which can constitute a board, and that minimum is four. Below that number you cannot have any board at all. …

Now, although you have to have a board of four, yet under a subsequent article the quorum which could act, as provided by article 109, was three, and inasmuch as there were three directors in the present case it was said that they had a quorum at all events and therefore were able to transact business. It is quite clear to my mind that the provision that a quorum of the board of four may act does not make legitimate acts by a board consisting of less than four members: you must have a board of four before there can be a quorum. Saying that the quorum shall be three seems to me to be quite a different thing from saying that three directors can act as a board when the articles themselves provide that the number of directors shall be not less than four.

99    The position has been considered in a number of Australian cases.

100    In Jalmoon Pty Ltd (in liq) v Bow (1996) 15 ACLC 233; [1997] 2 Qd R 62, the articles required that the number of directors shall be not less than two nor more than 10. At the relevant time there was a sole director and there was no provision saving the validity of acts of a board not properly constituted. At that time the Companies Act 1981 (Cth) also required that a proprietary company have at least two directors. The Court stated (Pincus JA and Helman J) (at 68):

It is curious that there is a lack of authority on the question whether non-compliance with the numerical requirement in the Act is invalidating; however, it seems to be established that non-compliance with a numerical requirement as to the composition of a board in the Articles would ordinarily invalidate acts of a board not properly constituted: Re Alma Spinning Co (1880) 16 Ch D 681, and Re Sly, Spink and Co (1911) 2 Ch 430; we see no reason why the same principle should not apply to the statutory requirement.

101    In Gosford Christian School Ltd v Totonjian [2006] NSWSC 725; (2006) 201 FLR 424 (Barrett J), the relevant article provided that the board shall consist of not less than three nor more than nine members. The quorum necessary for the transaction of the business of the directors was said to be 60% of directors holding office. There was a continuation clause but it operated in the alternative: it provided that the continuing directors may act notwithstanding any vacancy in their body but if and so long as their number is reduced below the number fixed by or pursuant to the regulations of the company as the necessary quorum of directors, the continuing directors may act for the purpose of increasing the number of directors to that number or of summoning a general meeting of the company but for no other purpose.

102    That is, the first part of the clause permitted continuing directors to act without restriction notwithstanding the vacancy in their body. The second part allowed them to act only for the specific purpose of increasing the number of directors or summoning a general meeting.

103    The Court found that in a scenario where there was only one director holding office, a quorum was established (60% of one director to be properly regarded as one). Accordingly, that one director was able to continue to act generally under the first part of the continuation clause despite the number of directors falling under the minimum requirement. Importantly, although the constitution had therefore been complied with, there was non-compliance with s 201A of the Corporations Act which required that, as a public company, the relevant company have at least three directors. The Court held that such default was substantive and not procedural, but validated the relevant conduct of the director under s 1322(4)(a), finding that there was no lack of honesty, and nor was substantial injustice caused or likely to be caused to any person (a similar clause providing alternative powers of continuing directors depending upon the quorum was considered by Barrett AJA in Re Condor Blanco Mines Ltd [2016] NSWSC 1196 at [100]-[101]).

104    In Re Continental Pacific Insurance Company (Aust) Ltd [2002] NSWSC 789 at [14], Barrett J held that the absence of a statutory minimum number of directors is not of a procedural nature but goes to substance, in the sense of substantive compliance with a statutory provision and a provision of the constitution. However, his Honour considered that when it comes to quorum, non-compliance may be regarded as procedural (a view consistent with s 1322(1)(b) of the Corporations Act).

105    In Singh v Singh; Flora t/as Flora Constructions v Budget Demolition & Excavation Pty Ltd [2008] NSWSC 386, Barrett J at [95] confirmed the position as follows:

Where a constitution states that a board "shall consist of" a certain number (or a certain minimum number) of members, a body of persons fewer in number than the required number do not constitute the board at all. This is made clear by cases such as The Faure Electric Accumulator Co Ltd v Phillipart and Re Sly, Spink & Co.

(Citations omitted)

106    The principles were also usefully consolidated by Black J in Correa v Whittingham (No 3) [2012] NSWSC 526; (2012) 267 FLR 120 at [26] (and on this point undisturbed on appeal - Correa v Whittingham [2013] NSWCA 263; (2013) 278 FLR 310):

There is authority that, if the number of a company's directors has fallen below the minimum prescribed in the constitution, but sufficient directors attend a meeting to constitute a quorum, those directors may validly act provided a company's constitution expressly or impliedly authorises them to do so: Re Scottish Petroleum Co (1883) 23 Ch D 413 at 431; Re Bank of Syria [1900] 2 Ch 272 at 278, aff'd Re Bank of Syria [1901] 1 Ch 115 at 120 121; and see Halsbury's Laws of Australia at [120.8185]. However, the provisions of the constitutions considered in those cases typically authorised the directors to continue to act either generally or for a specified purpose notwithstanding that the number of directors had fallen beneath the specified minimum. There is no corresponding provision in the Club's constitution and Mr Whittingham did not contend such a provision could be implied. Where the Club's constitution does not expressly or impliedly authorise directors to act where the numerical requirement as to the number of directors is not satisfied, then acts of a board will not be valid in that situation: Re Sly, Spink & Co [1911] 2 Ch 430; Gosford Christian School Ltd v Totonjian [2006] NSWSC 725; (2006) 201 FLR 424 at [54]ff; Singh v Singh [2008] NSWSC 386 at [95].

Single/range of directors

107    The second respondent suggested there may be some difference between a scenario where a clause specifies a single number of directors as against a range.

108    There is some suggestion that the positions may be distinguishable if the clause specifies a fixed number in Re Sly, Spink & Co, and also in Re Alma Spinning. There is no reasoning that explains why such distinction would matter and the statements are obiter. I do not consider there is any valid distinction. There is no apparent reason why a number of directors less than a single number fixed by a constitution should be competent to bind the company whilst a number less than the minimum of a numerical range should not. This was the view reached following a close examination of the authorities by KE Lindgren (later Lindgren J) in 'The Power of a Constitutional Organ of a Registered Company to Bind the Company by its Contractual Acts' (1977) 8 Sydney L. Rev. 333, 347.

109    I find further support for this view in Barrett J's assumption in Singh v Singh (at [95]) that the position is the same whether the constitution states that a board shall consist of a certain number or a certain minimum number, and by Black J's application in Correa v Whittingham (No 3) (at [25]-[26]) of cases such as Re Sly, Spink & Co and Gosford Christian School to a scenario where the board was to consist of a fixed number of directors.

Quorum

110    The constitution of a company normally fixes, or enables the directors to fix, the quorum for a board meeting: that is, what number of directors must be present to enable them to act as a board and exercise the powers vested in them collectively. The provision of a quorum does not dispense with the need for all directors to have notice of a meeting. If the requisite quorum is not present, the meeting is irregular and cannot transact business, although lack of a quorum may comprise a procedural irregularity that can be remedied (eg s 1322(1) and s 1322(2) of the Corporations Act: s 576-15(1) and s 576-15(2) of the CATSI Act).

111    In the overwhelming majority of cases, a quorum for a directors' meeting is defined as a single fixed number. Section 248F of the Corporations Act provides that in the case of a public company the quorum is two directors.

112    As noted above, both s 212-20 of the CATSI Act and r 12.3 of the Constitution provide that the quorum for a directors' meeting is a majority of the directors and that quorum must be present at all times during the meeting.

113    The interpretation of this drafting is not assisted by the Explanatory Memorandum to the bill that became the CATSI Act (EM). It states that s 212-20 is the same as s 248F of the Corporations Act (in fact it refers to s 228F but that is a typographical error), but that is not correct.

114    As already discussed, if the number of directors of the company is less in the whole than the required minimum, no effective board meeting can be held. The authorities also establish that the fixing of a quorum presupposes and operates on an adequately composed 'board': Kirk v Bell (1851) 16 QB 290; Faure Electric Accumulator Co v Phillipart (1888) 58 LTR 525; Re Alma Spinning. A 'continuing directors may act' clause also presupposes that the minimum number of directors was at some point appointed: Re Sly, Spink & Co. In Re Bank of Syria: Whitworth's Claim [1901] 1 Ch 115 is to the same effect. Correa v Whittingham (No 3) also supports the position that there must be an adequately composed board in order for there to be a valid quorum (seven directors required, a quorum specified as four, four directors were appointed - but even so there was no valid authority until the minimum number of directors was restored).

115    It may be, however, that the terms of a constitution suggest a different outcome. For example, I note that in Gosford Christian School the relevant quorum article expressly referred to a percentage of directors 'holding office': there are no such words in r 12.3.

116    The parties do not agree as to the construction of r 12.3. The applicant says such clause must refer to a quorum of a properly constituted board and so the quorum is seven directors. The second respondent says that the provision must refer to properly appointed directors, and so it is 'fluid' as to the number but where, as in this case, 11 directors held office then the quorum is six.

117    I prefer the applicant's position. I note that r 12.3 does not specify a quorum of seven when it could easily have been stipulated. However, the rule is clearly based on s 212-20 of the CATSI Act and that section operates in circumstances where a company may have a specified minimum number of directors or a minimum of a numerical range and one can assume it is intended to provide for a number of scenarios. I also note that 'Directors' is defined but the definition is not decisive. The somewhat circular definition leads back to a director being one of a board of 12. Endorsement of the second respondent's position would require acceptance of the proposition that no matter the level of reduction in the number of appointed directors, provided there can be a majority, there may be a quorum that can continue to conduct the affairs of NAC. That outcome seems to me to be inconsistent with a constitution that anticipates a board of 12 with specific gender representation and quite specific terms as to their nomination process.

118    Nor do I accept the second respondent's submission to the effect that the Constitution permits directors to act individually rather than as a 'board'. It is true that the drafting of the Constitution sometimes utilises the expressions interchangeably, but it is also clear to me that it is intended that the directors act collectively. This is particularly the case with respect to acceptance of applications under r 5.2.1(c) and consultation under r 5.2.4(a) and the role of the 'Directors': by its definition, the reference to 'Directors' is to them holding office as members of the board. I am not persuaded that absent express words, the Constitution anticipates that a quorum of only the remaining appointed directors can conduct the affairs of NAC and vote on resolutions.

119    In this case, the issue of quorum is secondary in any event. As the 11 directors were not competent to bind NAC, then whether there was a quorum of directors present is not to the point. On the other hand, if it was empowered to act with only 11 directors, then whether the quorum was six or seven, any irregularity in number is on its face procedural only and open to being validated, as discussed further below.

120    I should add that I find that there were six directors present at the November meeting. Although five of the six were present throughout and the other two in effect 'tag-teamed', I consider the practical result is that there was a presence of six directors. Had the quorum been six, then the directors would have been quorate. 'Quorum' refers to a number. Rule 12.3 requires a quorum to be present throughout the meeting, rather than the particular directors who might make up a quorum. I was referred to no authority to the contrary and bearing in mind that with such corporations it is well known that there is the potential for long meetings, there seems to me to be no reason to give r 12.3 a narrow meaning by inferring that the particular directors, and not only the minimum number for a quorum, must remain present.

Board not properly constituted - first contravention relied upon by NAC

Meaning of rule 9.1

121    Rule 9.1 is clear in its terms. There must be 12 directors appointed. In fact, the term is even more specific than in other cases: gender representation is provided for. That is the contract made between NAC and its members as to who is entrusted to manage the company, to echo the words of Jessell MR in Re Alma Spinning.

122    The prescription of a number rather than a range is not inconsistent with the requirements of the CATSI Act. The Act does not prohibit nomination of a specific number of directors, and the nominated number complies with s 243-1 and s 243-5.

123    The number of directors at the time of the resolutions at the September and November meetings was therefore less than the number specified in the Constitution. In accordance with the cases reviewed above, I consider the board was not properly constituted and there was no proper authority to pass the purported resolutions.

No express or implied implication that directors may continue to act

124    The question then is whether the Constitution expressly or impliedly authorises the continuing directors to act where the required minimum is not satisfied.

125    The Constitution does not contain a 'continuing directors may act' clause. Therefore, the scenario is similar to that considered in each of Re Alma Spinning and Correa v Whittingham (No 3). Absent such express provision, it is important to consider whether there are other rules in the Constitution that inform the question of whether such power is to be implied.

126    Both parties rely on r 9.4.3, a rule that is not elegantly drafted. It provides as follows:

9.4.3    Directors may appoint other Directors to make up a quorum

(a)    As long as the maximum number of Directors is not exceeded, the Directors of the Corporation may appoint a person as a Director to make up a quorum.

(b)    If the total number of Directors does not make up a quorum, a person can be appointed under rule 9.4.3(a) to make up a quorum for a Directors' meeting.

(c)    If a person is appointed under rule 9.4.3(a), the Corporation must confirm the appointment by resolution at the Corporation's next AGM. If the appointment is not confirmed, the person ceases to be a Director of the Corporation at the end of the AGM.

127    The applicant relies on it as the foundation for a submission that the rule enables the directors to fill casual vacancies in the number of directors and so the result of the loss of a director can be resolved readily. It contends that r 9.4.3(a) when properly construed provides for that course.

128    The second respondent submitted that even if there is a shortfall in the number of directors, those who remain are implicitly authorised to continue to act and make resolutions of the nature of those now impugned. The basis and justification for such implication was said to be that:

(a)    r 9.4.3 mirrors s 246-20 of the CATSI Act;

(b)    the fact that r 9.4.3 authorises the directors to act where there are less than 12 directors in order to establish a quorum carries the implication that the directors may act in such circumstances for purposes broader than merely establishing a quorum (if they are quorate);

(c)    such a conclusion is open even though r 9.4.3 does not include the broader language found in the constitution in Re Condor Blanco Mines Ltd and Gosford Christian School.

129    I note two preliminary matters. First, it is not suggested that the NAC directors purported to appoint an additional director to fill the vacancy during the relevant period. The relevance of the debate is the capacity of the directors to do so. Second, in accordance with r 9.4.1, NAC can move to appoint new directors at any time by resolution at a general meeting, including a special general meeting. By r 7.3.1 a director may call such a meeting. I do not accept the second respondent's suggestion that if the Court were to find that the directors could not act where the minimum of 12 were not in office then NAC would be paralysed. A meeting could be called to address the vacancy (and there was no suggestion that there would be such urgency to deal with a membership application that the notice period for a meeting would be a practical issue - indeed some applications had been with NAC for many years). Steps undertaken by the directors could also be ratified.

A comparison between s 246-20 CATSI Act and r 9.4.3, and inferring power

130    Section 246-20 of the CATSI Act provides:

246-20    Directors may appoint other directors to make up a quorum (replaceable rule-see section 60-1)

Appointment by other directors

(1)    Subject to section 243-5 (maximum number of directors), the directors of an Aboriginal and Torres Strait Islander corporation may appoint a person as a director.

(2)    A person can be appointed under subsection (1) in order to make up a quorum for a directors' meeting even if the total number of directors of the corporation is not enough to make up that quorum.

Confirmation by next AGM

(3)    If a person is appointed under subsection (1), the corporation must confirm the appointment by resolution at the corporation's next AGM. If the appointment is not confirmed, the person ceases to be a director of the corporation at the end of the AGM.

131    The section is similar to s 201H of the Corporations Act. The EM provides:

Proposed section 246-20 is consistent with the requirements in section 201H of the Corporations Act that directors appointed by other directors need to have their appointment confirmed at the next AGM. Proposed subsection 246-20(2) allows this to occur even when the total number of directors does not achieve quorum. This assists workability by avoiding the situation, for example, where a number of directorships have ceased leaving the remaining directors unable to call a general meeting to appoint new directors. This is a replaceable rule as provided for in proposed section 60-1 and subject to the internal governance rules requirement at proposed section 29-20.

132    The ordinary meaning of s 246-20(1) seems clear. The directors may appoint a director. It applies whether or not the directors are quorate. Section 246-20(2) expressly permits the exercise of the power in order to achieve a quorum. The words of the EM do not suggest s 246-20 as a whole is intended to apply only to achieve a quorum: it is to apply 'even when the total number of directors does not achieve quorum'. The EM confirms the ordinary meaning that I would ascribe to the words in s 246-20(1).

133    By way of example, if there is a requirement that a company have three directors and a quorum is prescribed as two, but there is only one director holding office, s 246-20(2) would enable the sole director to appoint a second director to ensure there is a quorum, and the quorum could then appoint the third director under s 246-20(1) to ensure the requirement of three directors is met. That is the manner in which it has been considered that s 201H of the Corporations Act may operate, by way of example: Re Condor Blanco Mines Ltd at [94].

134    However, the heading to s 246-20 in the CATSI Act refers to an appointment 'to make up a quorum', and therefore includes words of limitation not found in the heading to s 201H of the Corporations Act or the EM. In contrast to headings to parts and divisions in legislation, the heading of a section does not form part of the Act: Acts Interpretation Act 1901 (Cth) s 13. The heading cannot be ignored: DC Pearce and RS Geddes, Statutory Interpretation in Australia (8th ed LexisNexis, 2014) [4.52]. Having regard to the reference to s 201H, the express words of s 246-20(1) and the expression I have noted in the EM, I prefer the view that the heading does not limit the operation of s 246-20(1) to where there is no quorum.

135    However, the wording of s 9.4.3 of the Constitution is slightly different to s 246-20, although it follows the same format. It bears the same heading as s 246-20 of the CATSI Act, and r 9.4.3(b) and r 9.4.3(c) are for all intents and purposes the same as s 246-20(2) and s 246-20(3). However, r 9.4.3(a) has the added words of limitation that the directors may appoint a person 'to make up a quorum'.

136    The potential operation of r 9.4.3 where there are 11 directors is revealed by some examples.

137    If only six directors attend a meeting, they are authorised by r 9.4.3(b) to appoint another director to make a quorum of seven, and that could be done without exceeding the specified number of 12 directors (r 9.4.3(a)). That person would remain as a director only until the next AGM and thereafter if their appointment is confirmed by the AGM. The need for 12 directors would also be resolved (and subject to gender).

138    If a meeting is quorate (seven or more attend), then on the face of r 9.4.3(a) and r 9.4.3(b), there is no capacity for the directors to appoint an additional director to fill the vacancy in the number of directors: they can only appoint to make up a quorum.

139    Such a construction could lead to contrivance. In the above examples, six directors could move to resolve the issue of the deficiency in the number of directors, but seven could not.

140    It seems to me that the provision may have been drafted having regard to s 246-20 of the CATSI Act but without an appreciation of the effect of adding the words 'to make up a quorum' in r 9.4.3(a). Counsel for the applicant submitted that the reference to quorum in r 9.4.3(a) should be read as a reference to the requirement of 12 directors. Such a construction would be consistent with s 201H of the Corporations Act and s 246-20(1) of the CATSI Act (if I am right as to construction of the latter). If the words 'to make up a quorum' in r 9.4.3(a) limit its use to that scenario, then there is no real role for r 9.4.3(b). It is repetitive. A director can be appointed to make up a quorum under r 9.4.3(a). The inclusion of the heading above r 9.4.3 again is not decisive. Under the interpretation provisions in r 2.2 of the Constitution, headings are for convenience only and are not intended to affect the interpretation of the rules.

141    On balance I prefer the view that a quorate number of directors can fill a vacancy in the number of directors under r 9.4.3(a) and that the words 'to make up a quorum' have no meaning in the context of the rule. I do not consider it a case of ambiguity but simply a case where the additional words are in error and can be ignored (in accordance with the principles in Fitzgerald v Masters [1956] HCA 53; (1956) 95 CLR 420).

142    However, that outcome makes no difference to the result in this application. I do not consider the second respondent's emphasis on r 9.4.3 assists it. The power to fill a vacancy under r 9.4.3(a) may simplify the process for the continuing directors in terms of filling a vacancy in limited circumstances, but it does not provide other continuing powers to act. It suggests the continuing directors have only a limited role pending the calling of a general meeting. It does not follow that the directors can undertake other business, let alone pass resolutions of the substantive kind the subject of the September and November meetings.

143    I accept that, equally, there are no terms that expressly limit the role of the continuing directors. This absence appears to be the basis of the second respondent's implied terms argument: an argument that inclusion of a 'continuing directors may act' clause is unnecessary because provided there is a quorum at meetings, those continuing directors may continue to manage the business of the company, and r 9.4.3 is concerned only with preserving a quorum.

144    I am not satisfied that I can imply a term to that effect. The Constitution is workable without such a term being implied, for the reasons set out above at [129]. In the face of a body of authority that stipulates that directors cannot properly act where there is no 'continuing directors may act' clause, one would expect that where such a term is absent, there would be clear indicia from which to imply the term, and in this case there are not.

145    I also note those authorities that refer to a rule that permits the directors to fill vacancies to meet a quorum but also have a rule that 'continuing directors may act': for example Re Scottish Petroleum. The 'continuing directors may act' rule would be unnecessary if the power to so act could in any event be implied from the power to fill casual vacancies to make up a quorum.

146    The other rules of the Constitution do not assist. The definition of 'Director', to which I have already referred, does not assist the second respondent. Whilst conscious of the limitations that should be placed on attaching weight to the EM, particularly where I am concerned with a provision in the Constitution, I note that the EM refers to filling a quorum, so that, for example, the directors can call a general meeting. There appears to be no premise that because continuing directors are authorised to address a lack of quorum, they are authorised by the CATSI Act to act more generally. Whilst not of great relevance, I note the result I favour is consistent with the apparent assumption behind that part of the CATSI Act as expressed in the EM.

Conclusion on validity of resolutions

147    The number of incumbent directors was less than the constitutional minimum of 12 and so there was not a properly constituted board at all. The fixing of a quorum presupposes and operates on an adequately composed board. So even if the quorum were met, the resolutions or decisions were not valid. Whilst there was the ability in limited circumstances for the directors to fill a vacancy or make up a quorum, that power alone was not sufficient from which to infer there was authority for continuing directors to act generally. Nor could such power otherwise be inferred.

148    Therefore the resolutions accepting the applications of the 256 pending members as members of NAC were invalid, subject to any further order of this Court on the cross-claim.

The quorum issue - second contravention relied upon by NAC

149    This has been dealt with above. The quorum was not achieved at the November 2017 meeting. I consider the consequences of the invalidity below in the context of the cross-claim.

Consultation with the Council of Elders - third contravention relied upon by NAC

150    The Council of Elders comprised 28 people, selected because of their seniority and because they are recognised as holding traditional decision making authority and knowledge regarding Ngarluma law and culture. They are empowered to make recommendations and provide guidance to NAC, and that includes consulting with the directors on membership applications. Importantly, the directors are obliged to consult with the Council of Elders on membership applications. So much is clear from sch 3 and r 5.2.4 of the Constitution.

151    I accept that the manner in which the directors are to 'consult' with the Council of Elders is not prescribed. Schedule 3 and r 5.2.4 do not require formal meetings for that purpose. The directors may call a meeting of the Council of Elders, and notice must be given to each elder, but there is no mandatory requirement that consultation must occur at a formal meeting. There is no reason it could not occur at one of the quarterly meetings that are anticipated by S3.4.1. In light of r 12.2(e), it also seems permissible for consultation to take place at a directors' meeting. Regardless of when it occurs, for consultation within the meaning of r 5.2.4 to be genuine it seems to me that the members of the Council of Elders should be notified and invited to participate (in person or otherwise). There may be good reason why they do not all participate - such matters were not explored in this case. However, such a course at minimum provides any elder who considers they have knowledge to contribute with respect to membership applications the opportunity to do so. That is, after all, one rationale for a structure that incorporates access to a Council of Elders.

152    Decisions as to accepting or refusing membership applications must not be made lightly. They must be made by directors acting in good faith and in accordance with an information-gathering and assessment process that is regulated by the Constitution. Bearing in mind the purpose and objects of NAC, and the indirect consequence that members have access to certain benefits, refusal of an application requires some caution. A legitimate applicant who is wrongly refused membership is directly affected by such a decision. At the same time, bearing in mind that members have voting rights that may be diluted if membership is wrongly inflated, acceptance of an application also requires caution. So much is obvious.

153    The obligation to consult is one that should be taken seriously by the directors. Authorities on an obligation to consult (although in different contexts) were considered by Flick J in Tomvald v Toll Transport Pty Ltd [2017] FCA 1208 at [208]-[217], and his Honour stated that such a requirement is of fundamental importance and is not to be treated perfunctorily. I agree with that assessment.

154    The manner in which members of the Council of Elders are able to contribute may have a significant impact on the outcome of membership applications. The relevance of the elders' potential knowledge, guidance, advice and experience is reflected in the fact that consultation is obligatory. The elders who are members of the Council of Elders are also subject to duties, including duties of care and diligence and good faith.

155    There is no evidence that the Council of Elders met or consulted with the directors between the May meeting and the September or November meetings.

156    The evidence as to the May meeting provides little comfort. Only six applications were discussed.

157    I note Ms Mowarin's evidence that, 'the elders were all growling about membership as they felt the board had previously removed them from having input into the decision making processes'. I accept her evidence is not particularly probative, and reflects only Ms Mowarin's impression of what was conveyed at the meeting. However, such apparent disquiet from the elders is consistent with a claim that there was no comprehensive consultation on the membership applications at the May meeting.

158    This was the only meeting referred to where a significant number of elders were present. I can infer from the number of attendees that the elders (or at least 26 of them) were provided with notice of the meeting and were sufficiently interested in the meeting to attend, or considered it appropriate to attend in light of their duties as members of the Council of Elders.

159    At the September meeting there were no elders present from the Council of Elders, apart from two who were present in their capacity as directors. There is no evidence that the directors sought the advice or guidance of the Council of Elders as to any of the issues that might arise in considering the membership applications. I do not accept NAC's submission that (in effect) the directors were to consult on each and every application. I infer there were family groups and themes that might arise, and guidance from the elders on one application or descendant group might have the effect of assisting the directors with a number of, or indeed many, other applications. The list of apicals and family lines provided as part of the board pack was not short and suggests that input from a large, rather than small, number of elders would have been more likely to provide a breadth and diversity of knowledge.

160    The process for inviting a select number of elders to the November meeting is curious. The directors appear to have appreciated that it was appropriate to seek advice from elders, but undertook that task in a limited way, and in circumstances where there is no evidence they had held regular meetings with the elders as anticipated by sch 3. There is evidence that the identified elders were approached. There is no evidence to suggest that any of the other elders of the Council were approached, were given notice of the proposed conferral or indeed had any knowledge of the large number of applications being considered by the board. It may be that the elders were selected at the meeting on the basis that they were identified as elders who might provide a cross section of knowledge and advice. On the other hand, they might have represented only a small group of families or interests. There is no evidence of such matters. In any event, a selection of some 9 or 10 elders when there were 28 elders appointed is odd, particularly when it transpired that only three elders (in addition to the two who were directors) actually attended the meeting. Again, it must be recalled that a large number of applications, potentially from diverse backgrounds, were pending.

161    Counsel for the second respondent submitted that the process of consultation should be organic as the process involved people coming together to talk about people from the township that they know, and that they know each other's genealogy. The evidence does not support the factual basis of the submission. The board at the May meeting acknowledged that there was a need for consultation with the elders. Whilst I place no great weight on it, the evidence as to the apparent lack of a warm welcome to new members at the 'meet and greet' suggests that there are very different views as to whether the people of the area all know each other's genealogy.

162    I am not satisfied that the limited discussions with elders at the May meeting, the process of inviting only a select group of elders to the November meeting or proceeding with the meeting with only three non-director elders and two director elders present comprised consultation as required by the Constitution, when viewed against the number of elders on the Council, the number of applications subject to consideration and the lack of evidence of any other relevant meetings between the elders or the elders and the directors.

163    I should add that this finding should not be viewed as a criticism of the elders who attended the November meeting and there is no suggestion on the evidence before me that they did not act in good faith.

164    A failure to consult deprived the board of the opportunity to receive information that might have been valuable and decisive.

165    I cannot say that information arising from consultation would have made a difference to the outcome. Nor can I be satisfied that it would not have made a difference. This is addressed further below.

The cross-claim

166    The second respondent seeks declaratory relief under s 576-15 of the CATSI Act.

167    Section 576-15(6) and s 576-15(8) of the CATSI Act are fundamental. They are the equivalent of s 1322(4) and s 1322(6) of the Corporations Act. It is common for the provisions of the CATSI Act to be interpreted having regard to parallel provisions found in the Corporations Act (Adams v Yindjibarndi Aboriginal Corp RNTBC [2014] WASC 467; (2014) 104 ACSR 29 at [10] (Kenneth Martin J)), and there was no issue between the parties that it was appropriate in this case to have regard to cases that deal with s 1322 of the Corporations Act.

168    Section 576-15(6) and s 576-15(8) provide as follows:

(6)    Subject to the following provisions of this section but without limiting the generality of any other provision of this Act, the Court may, on application by any interested person, make all or any of the following orders, either unconditionally or subject to such conditions as the Court imposes:

(a)    an order declaring that any act, matter or thing purporting to have been done, or any proceeding purporting to have been instituted or taken, under this Act or in relation to an Aboriginal and Torres Strait Islander corporation is not invalid by reason of any contravention of a provision of this Act or a provision of the constitution of an Aboriginal and Torres Strait Islander corporation;

(b)    an order directing the rectification of any register kept by the Registrar under this Act;

(c)    an order relieving a person in whole or in part from any civil liability in respect of a contravention or failure of a kind referred to in paragraph (a);

(d)    an order extending the period for doing any act, matter or thing or instituting or taking any proceeding under this Act or in relation to an Aboriginal and Torres Strait Islander corporation (including an order extending a period where the period concerned ended before the application for the order was made) or abridging the period for doing such an act, matter or thing or instituting or taking such a proceeding;

and may make such consequential or ancillary orders as the Court thinks fit.

…

(8)    The Court must not make an order under this section unless it is satisfied:

(a)    in the case of an order referred to in paragraph (6)(a):

(i)    that the act, matter or thing, or the proceeding, referred to in that paragraph is essentially of a procedural nature; or

(ii)    that the person or persons concerned in or party to the contravention or failure acted honestly; or

(iii)    that it is just and equitable that the order be made; and

(b)    in the case of an order referred to in paragraph (6)(c)-that the person subject to the civil liability concerned acted honestly; and

(c)    in every case-that no substantial injustice has been or is likely to be caused to any person.

169    A substantive irregularity can be validated by the court under s 576-15(6)(a) of the CATSI Act.

170    A declaration can be made under s 576-15(6)(a) in respect of an invalidity by reason of any contravention of, relevantly, a provision of the Constitution.

171    The prerequisites for the making of an order of validation under s 576-15(6)(a) are prescribed by s 576-15(8)(a). Section 576-15(8)(a) provides that the court cannot make a validating order unless it is satisfied of at least one of the three following conditions, namely:

(1)    the matter is essentially of a procedural nature; or

(2)    the persons concerned acted honestly; or

(3)    it is just and equitable that the order be made.

172    The conditions prescribed in s 576-15(8)(a) are not cumulative. Consequently, the power to make an order under s 576-15(6)(a) is not limited to cases of procedural irregularity: Weinstock v Beck [2013] HCA 14; (2013) 251 CLR 396 at [10] (French CJ).

173    Where one of the conditions in s 576-15(8)(a) is satisfied, the court must not make an order unless it is satisfied that no substantial injustice has been, or is likely to be, caused to any person.

174    The court must also be satisfied that it is the irregularity which occasions the 'substantial injustice' and not the 'proceeding' that caused or may yet cause substantial injustice: Re Pembury Pty Ltd [1993] 1 Qd R 125 at 127 (Byrne J); Chalet Nominees (1999) Pty Ltd v Murray [2012] WASC 147 at [28] (Le Miere J).

175    The onus of showing the fulfilment of one of the three conditions for an order as provided for in s 576-15(8)(a), and the absence of substantial injustice, rests upon the applicant for an order: Australian Hydrocarbons NL v Green (1985) 10 ACLR 72 (Hodgson J).

176    In this case the three contraventions relied upon by the applicant all relate to the same decisions, being the resolutions or decisions to accept the membership applications at the September and November meetings.

177    As to the contravention of r 9.1 by failing to have the minimum number of directors, I do not consider the contravention is procedural: Re Continental Pacific Insurance Company (Aust) Ltd; Gosford Christian School. It is substantive.

178    As to the failure to maintain a quorum, the invalidity is in a sense subsumed by the first contravention. In the usual case, there is no doubt that lack of a quorum may, depending on the circumstances, be considered a procedural contravention particularly where it does not alter the essential outcome of a meeting. However, this is not a straight forward case of lack of quorum by failing to meet a numerical number, but also a case of failure to achieve a quorum because one could not properly be constituted at all. That leads me to the view that the contravention is substantive, but the outcome is no different regardless: I must still consider the issue of whether the irregularity caused or causes substantial injustice.

179    As to the failure to consult, I do not consider the contravention is procedural.

180    In Sandy v Yindjibarndi Aboriginal Corporation, Le Miere J set out the following principles in considering whether the failure to give reasonable notice to a director raised a procedural or substantive irregularity (at [46]):

In Re Sidex Australia Pty Ltd (Receiver and Manager Appointed); Sipad Holdings DDPO v Popovic (1995) 18 ACSR 436, 449 Lehane J suggested that a procedural irregularity may arise where the parties have attempted to do something which the Act permits but have failed to do it effectively because of a procedural failure or a omission but not where the parties have tried to do something which the Act does not authorise. The Court of Appeal took the same approach in Smolarek v Liwszyc [2006] WASCA 50; (2006) 32 WAR 129 [59]. In Cordiant Communications (Australia) Pty Ltd v The Communications Group Holdings Pty Ltd [2005] NSWSC 1005; (2005) 55 ACSR 185 Palmer J addressed the issue of what is a substantive irregularity as distinct from a procedural irregularity. His Honour referred to the cases concerning the distinction between a substantive law or rule and a procedural law or rule and in particular dicta from the joint judgment in John Pfeiffer Pty Ltd v Rogerson [2000] HCA 36; (2000) 203 CLR 503, 543 - 544 and continued:

In the light of this observation and of the decisions in Industrial Equity, ANZ Nominees, Scallion and Link Agricultural I think that the following general propositions may be formulated for the purposes of the application of Corporations Act s 1322:

-    What is a 'procedural irregularity' will be ascertained by first determining what is 'the thing to be done' which the procedure is to regulate;

-    If there is an irregularity which changes the substance of 'the thing to be done', the irregularity will be substantive;

-    If the irregularity merely departs from the prescribed manner in which the thing is to be done without changing the substance of the thing, the irregularity is procedural [103].

181    It seems to me that the obligation on the directors (leaving aside the competency issue) was to determine membership applications having consulted with the Council of Elders. The failure to consult changed the substance of the determination and the irregularity was substantive. On the evidence before me, the irregularity is not as to how to go about the consultation process (where and when, for example) but the failure to carry out the substantive and mandatory task of consultation itself.

182    The question then is the application of s 576-15(8)(a). I am not satisfied that the relevant contraventions are essentially of a procedural nature, so the first limb is not met. As to the question of honesty for the second limb, I considered the meaning and application of the term in ICandy Interactive Limited, in the matter of ICandy Interactive Limited [2018] FCA 533; (2018) 125 ACSR 369 at [54]-[84]. I do not consider there is evidence from which I can properly infer a lack of honesty on the part of the persons involved in the contraventions. I acknowledge that it is the conduct of NAC and its directors that is in question, and not that of the respondents. The task for a respondent in meeting the onus of establishing that relevant persons acted honestly might in some cases be quite difficult, depending on the evidence available to it. For example, in this case the reasons for the contraventions have not been fully exposed by NAC. However, whether or not the honesty limb is satisfied is not relevant to the disposition of this case as in any event I am satisfied (for reasons explained below) that the irregularities caused or may have caused substantial injustice that cannot be remedied by an order of the court.

183    The respondents' submissions on the just and equitable limb also apply to the issue of substantial injustice (see below).

184    The respondents' submissions centre around delay to date in assessing the applications; the potential loss of access to benefits; the prospect that they would be barred from applying again for membership because of r 5.2.2(b) (if a person who has within the past five years been removed as a member, they are not eligible for membership under r 5.2.2); and the risk of demand for repayment of benefits received.

185    The issue of delay in the original assessment of the applications seems to me to be a consequence of the proceedings and not the irregularity, as explained in Gosford Christian School and Re Pembury Pty Ltd. The Court is not now concerned with broader issues as to any alleged breaches of duty on the part of the directors during the membership assessment process.

186    The point as to removal from the register can be disposed of: counsel for NAC submitted that r 5.2.2(b) could not be invoked in circumstances where 'removal' from the register was performed in circumstances where the directors' acceptance of membership was declared invalid, in contrast to a valid membership being cancelled. Certainly it seems to me that r 5.2.2(b) is not intended to apply in circumstances such as removal from the register by this court process. Further, NAC has already informed the new members in writing that it will reconsider their applications 'in the near future' in the event the resolutions and decisions of the September and November meetings are invalid. Against that backdrop it would be wholly inappropriate and potentially a breach of the duty of good faith for the board to now seek to rely on r 5.2.2(b) to avoid an immediate and timely process of re-determining the membership applications.

187    There is legitimate concern by the respondents as to the loss of access to benefits through further delay in the assessment process. I do not know what course may or may not be undertaken by the trustee or custodial trustee with respect to access to benefits. Those are not steps to be taken by NAC. I acknowledge the potential prejudice to the respondents and take it into account in weighing all the matters that are relevant to the question of substantial injustice.

188    I also acknowledge the respondents' concerns that the trustee may seek to recover from them benefits they have received in the intervening period. I accept the submission made by counsel for NAC that recipients may have strong arguments that they received their payments in good faith and changed their position as a result of receipt of those payments. I also note counsel's submission that the cost of recovery by a trustee may reduce the prospect of a trustee seeking to recover small payments. The reference to 'small' is only in the context of that submission - I do not deny the value of such payments to the recipients. I cannot speculate as to the prospect of steps being taken by the trustee to recover payments. Those are matters for the trustee, taking into account its duties and obligations. I am not in a position to know of or direct any steps that might be taken by the trustee.

189    The second respondent also submitted that I should have regard to the fact that many of the directors of NAC or similar bodies are not necessarily experienced directors. In Weinstock v Beck, French CJ emphasised that corporations in contemporary Australian society serve the purposes of a range of enterprises operated by men and women, some of whom are sophisticated and knowledgeable on matters of corporate governance, and some of whom are not. The legislation reflects recognition of the fact that mistakes occur and it is not in the public interest that the validity of decisions be unduly vulnerable to innocent mistakes which may be corrected without injustice to third parties (at [39]).

190    I have taken into account those important comments in my approach to the relevant irregularities and s 576-15(8). For example, I accept that the directors of NAC may not have appreciated the significance of maintaining the minimum number of directors, and in circumstances where its Constitution has so little room for error in that regard. However, the internal management of corporations such as NAC, which have the capacity to impact upon a large number of people, must be undertaken carefully and with due support and accountability. I also note that based on the financial report referred to above, NAC from time to time has significant funds under its management. The Constitution provides the framework for good governance as agreed between the company and its members. In this case, it is the consultation obligation in particular that I have found to be central to the membership application process, and even allowing for perhaps some inexperience on the part of the directors (and there is no evidence as to such matters), I am not satisfied that it would be just and equitable to validate the contraventions.

191    In coming to this view I have taken into account all of the matters raised by the respondents. However, meeting any of the limbs in s 576-15(8)(a) is not decisive in this matter, as I am of the opinion that the irregularities caused or may cause substantial injustice that cannot be remedied by an order of the court.

192    In coming to this view, I have been assisted by a number of cases that deal with the absence from a meeting of directors or members, where those persons may have provided information or knowledge that may have affected the outcome of the meeting. I consider there is some analogy between the denial of an opportunity to convey information considered in such cases with the circumstances in this case of failure to consult or failure to provide the opportunity to elders to consult. I also take into account the hypothetical contribution of the one additional director who should have been on the board.

193    In Sandy v Yindjibarndi Aboriginal Corporation, Le Miere J held that a meeting was invalid because its directors had ceased to hold office, but considered a further argument about the failure to give notice of a meeting to a director. His Honour considered the irregularity to be procedural, but was of the opinion that the notice irregularity caused or may cause substantial injustice. The failure to give reasonable notice to the director caused her to not attend the meeting, a meeting which was convened to consider membership applications. The directors' meeting lasted more than five hours and at previous meetings the issue had resulted in a deadlock. The outcome of a directors' meeting was to be by general consensus. Le Miere J said (at [49]):

Membership applications are the subject of proceedings in this court and of a mediation conducted by Chaney J. Middleton Cheedy explained that at the directors’ meeting the directors present considered each applicant and discussed what they each knew of the applicants of their own knowledge. Given the requirement that the directors’ decision-making be by consensus it is not possible to say that the outcome of this, and other agenda items, would not have been different if Ms Tucker had received notice and attended the meeting. For that reason, I am of the opinion that the irregularity in failing to give Ms Tucker reasonable notice of the meeting caused or may have caused substantial injustice that cannot be remedied by an order of the court. If the meeting had not been invalid because directors had ceased to hold office, I would have declared it to be invalid by reason of the procedural irregularity in failing to give reasonable notice of the meeting to Ms Tucker.

194    Other cases where a common feature is that a member or director was denied an opportunity to attend a meeting or make representations to members and such failure was found to constitute substantial injustice include BI Constructions Pty Ltd v Shad [2010] NSWSC 484 at [37] (Slattery J) (the court is likely to make a declaration of invalidity no matter how unlikely it may be that the complainant who was denied an opportunity to speak will be able to persuade a future meeting to vote differently); and Dick v Comvergent Telecommunications Ltd [2000] NSWSC 331; (2000) 34 ACSR 86 at [17] (Windeyer J) (removal of a right for a director to make representations resulted in a scenario where it is not possible to determine what might have occurred).

195    The second respondent relies on those cases where the facts suggest there would have been no different outcome at a meeting but for the contraventions: Bovis Lend Lease Pty Ltd v Wily [2003] NSWSC 467; (2003) 45 ACSR 612 at [260] (Austin J); Cordiant Communications (Aust) Pty Ltd v The Communications Group Holdings Pty [2005] NSWSC 1005; (2005) 55 ACSR 185 (Palmer J). The second respondent points to the resolutions at the September and November meetings being unanimous, and submitted that even if there had been another director appointed, it would have made no difference to the outcome. I cannot be satisfied that would be the case, taking into account the nature of the matters being considered by the directors and the knowledge a director may have contributed at the meeting had they attended. However, the point cannot be considered in isolation. Even if the appointment or presence of an additional director would have made no difference to a vote, I must also take into account the consultation contravention.

196    I am not satisfied that the result of the determinations would have been the same had the consultation process with the Council of Elders envisaged by the Constitution been complied with, for the reasons I have already given as to the potential knowledge contribution that may have been made through such consultation. The view of the directors (and the elders present) may have changed with different information. There is a prospect that some applications may have been rejected.

197    I have discussed above the potential injustice to the respondents. The rights of the pre-existing members must also be given careful consideration. Those persons have voting rights that will be affected by an invalid expansion of the membership pool, and the process of removal of members under r 5.7.1 may well be costly and inefficient. The effect on headcount voting on acceptance of the new members is in the vicinity, I was told, of 28%. That is, the new members would comprise some 28% of all members. There is no doubt that an invalid dilution of voting rights is a matter that is substantive in nature: Rana v Survery (No 2) [2012] NSWSC 905 at [36]-[37] (Pembroke J) (affirmed on appeal in Rana v Survery [2013] NSWCA 234 (Bathurst CJ, Macfarlan and Hoeben JJA)). I consider the risk of wrongly inflated membership and wrongly diluted voting rights may result in substantial injustice to the pre-existing members. It is clear that the pre-existing members also have rights to benefits under the trusts but I am not in a position to assess whether such indirect benefits would be diluted or otherwise affected.

198    It follows that it is my view that the irregularities caused or may have caused substantial injustice that cannot be remedied by an order of the court, and the cross-claim must be dismissed.

199    For completion, I note that:

(a)    Ms Mowarin and NAC's solicitor provided evidence (summarised above under the heading 'Evidence') that was intended to persuade me that mistakes had been made as to the acceptance of particular members and that there was information that established such errors. Ms Mowarin was one of the directors who supported the respective resolutions at the time. She does not say whether or not the information referred to was brought to the attention of the directors at the time. It is unnecessary for me to consider further those particular factual matters in light of the outcome of the application; and

(b)    the first respondent did not provide written submissions on the application or bring a cross-claim but during the hearing generally adopted the position of the second respondent.

Conclusion

200    I am aware that the outcome of this application inevitably returns the respondents to a position previously endured by them, and for long periods of time, where their applications were pending and unresolved. It is an unfortunate position, and not brought about by their conduct but by that of NAC. It should be clear to the incumbent NAC directors from these reasons that the proper exercise of their duties as directors requires that they must move quickly to take all steps necessary to bring the respondents' membership applications (and the applications of all of those persons whose names are listed in the originating application) back before the board for proper and timely consideration within a finite period. Counsel for NAC indicated during the course of the hearing that, subject to the timing of any amendments to applications, an eight week timeframe should be achievable. Counsel for NAC also submitted that as the relief sought by NAC is discretionary, it would be open for the Court to place certain safeguards around that process as part of the grant of declaratory relief. I consider that is appropriate. I will hear the parties further as to the nature and basis of any proposed orders in that regard, the potential role of ORIC and as to costs. The parties should provide a draft order reflecting these reasons.

Associate:    

Dated:    30 November 2018