Professor Bob Baxt considers the outcome of a recent case that confirms the primacy of board directors.
With increasing demand for broader responsibility to be given to stakeholders and shareholders of companies, and the requirement for broader reporting regimes, it is rewarding (from my perspective) to read the Full Federal Court decision in Australasian Centre for Corporate Responsibility v Commonwealth Bank of Australia  FCAFC 80. Our firm acts for the Commonwealth Bank of Australia (the bank), but despite this, the decision is not only soundly based, but is also a clear decision (in my respectful view).
For some time shareholders have been demanding greater say in the running of their companies. Rules have been enacted to make directors more accountable to shareholders (the two strikes rule), and to tightly govern the remuneration of directors. More responsibility has been imposed on directors in dealing with the rules of corporate governance, including matters relating to the environment, occupational health and safety and a wide range of issues.
The Australasian Centre for Corporate Responsibility (the Centre) had asked the board of the bank to consider three resolutions at the annual general meeting of the bank, which were aimed at highlighting details of greenhouse gas emissions and related products of certain organisations financially “supported” by the bank (it is unnecessary to set out the wording of the resolutions). The shareholders argued before Justice Davies in the Federal Court that the bank was obliged to include the relevant resolutions by virtue of provisions in the Corporations Act 2001 (the Act). Justice Davies ruled that the bank was not obliged by law to include these resolutions in the annual general meeting (see Australasian Centre for Corporate Responsibility v Commonwealth Bank of Australia  FCA 785).
In her view the bank was not required to list the proposed resolutions to the annual general meeting. The request from the shareholders was not supported by any power given to them. The management of the company was vested exclusively, in her view, in the directors of the bank. Furthermore, she ruled that shareholders’ powers in the general meeting did not include power to pass resolutions of the kind that they sought to be proposed in association with the relevant resolutions being put forward.
Justice Davies relied on a number of interesting cases, which were also considered by the Full Federal Court. The court delivered its judgment on 10 June (with Chief Justice Allsop presiding and sitting with Justices Foster and Gleeson).
The court confirmed that the powers of management of the company rested primarily with the directors. The Full Federal Court examined provisions in the Act relating to the division of powers between the board and the shareholders; it then reviewed the bank’s constitution (formerly the articles of association), and in particular clause 12.1(a) which provided “the business of the company shall be managed by or under the direction of the directors, who may exercise all such powers of the company as are not, by [the Act] or the constitution, required to be exercised by the company in general meeting”.
A number of judgments were discussed by the Full Federal Court in its own short, but clear judgment. Their starting point is, in effect, the House of Lords’ decision of Howard Smith Ltd v Ampol Petroleum Ltd  AC 821 (although there are also earlier decisions). The court relied on earlier decisions of the English courts as well, namely Automatic Self-Cleansing Filter Syndicate Company Ltd v Cuninghame  2 Ch 34. Another prominent decision is John Shaw & Sons (Salford) Ltd  2 KB 113.
The court also found it useful, as I do, to refer to an interesting article by Aickin entitled Division of Power between Directors in General Meeting as a Matter of Fact & Policy (1967) 5 MULR 448.
This article is often cited as a leading review of the relevant issues arising in these types of matters. Also of interest is the most recent edition of the work by Horsley: Meetings: Procedure, Law & Practice (7th edition, edited by AD Lang, 2015), which is also referred to by the Full Federal Court.
It was argued by the appellants that the relevant resolutions, because they dealt with matters of some controversy, could (and should) have been considered at a general meeting, and in appropriate circumstances voted upon at a properly established meeting. But, neither the Full Federal Court, nor Justice Davies at first instance, could find a binding authority for the proposition that it was necessary for such resolutions to be put to the shareholders in order for the particular matter, or the power that underpinned the consideration of that matter, to be considered or decided at an annual general meeting. The court also referred to other interesting decisions in which similar questions were discussed.
The court’s view
In the court’s view the arguments put forward by the appellant shareholders which would “support the existence of a legal power or capacity in the company general meeting to express an opinion, by resolution, on a matter concerning the company’s management” was not supported by legal authority. “An individual’s expression of an opinion, even an opinion concerning him or herself, ordinarily does not involve the exercise of any legal power or capacity” (para 50). The Full Federal Court felt that the appellants were confusing legal powers and capacities with other powers and capacities that have no legal basis in undermining the general powers of directors to manage the affairs of the company.
Neither argument is based on an implied power on the part of shareholders or others, nor an interpretation of sections such as section 250R of the Act, which it was suggested by the appellants, vested power in shareholders to pass resolutions. These provisions of the Act, did not confer any power on the shareholders. “To the contrary, the inclusion of ss 250R(2) and (3) reflects the absence of power otherwise to pass the resolution that is the subject of ss 250R(2) and (3). Further, there is no reason to imply such a power from its language” (para 58).
In conclusion the Full Federal Court returned to the case of National Roads & Motorists Association v Parker (1986) 6 NSWLR 517, which had been relied on by Justice Davies in her decision to support her conclusions, and which they agreed with. The Full Federal Court also endorsed Justice McLelland’s view in the Parker case that “shareholders in general meeting did not have a role to play and the exercise of powers vested exclusively in the board by passing a resolution which would express an opinion on the exercise of those powers. That general proposition may be affected by the particular constitution of a company, but it applies in this case” (at 59).
In all the circumstances, in the opinion of the Full Federal Court, the appellants had failed to provide sustainable arguments that would support the proposition that the resolutions they wished to have the directors of the board put to the annual general meeting of the bank had to be put to the bank.
Justice Davies, in her decision, and the Full Federal Court discussed at some length that there was nothing in the constitution of the company, the common law or pursuant to the provisions of the Act that required the court to depart from her earlier conclusion. In the circumstances, the appeal was dismissed with costs being awarded against the shareholders.
It will be interesting to see whether this short, but nevertheless powerful, judgment of the Full Federal Court will be seen as providing any basis upon which shareholders could seek special leave to have the High Court decide the issue. Nevertheless it has been some time since the High Court of Australia has ruled specifically on questions such as those that arose in this particular case.
The decision, in my view, is underpinned by fundamental principles of corporate law – that unless there are clear indications either in statute, or by virtue of the corporate constitution (which of course the shareholders are entitled to amend if they can obtain a majority) which change that particular proposition, that management of the company, including matters to be considered at the end of the meeting, are powers which are vested in the board of directors.
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