Background

A recent decision of the Federal Court has focussed heavily on electronic communication with company members and the use of hyperlinks for accessing documents and the implication of those for meeting arrangements[1].

The Australian Computer Society Incorporated (ASC) is an incorporated association with objects to promote information and communications technology in Australia. It has just over 41,000 members, just over 10,000 of whom are voting members.  ASC is divided into 8 branches, one for each State or Territory in which the Society is active.  Each branch is run by an executive committee which has the power to appoint 2 representatives to the Congress.  The ASC management committee may exercise all functions, except those reserved to the Congress or ASC in general meeting.

During 2019, ASC took steps to apply for registration as a company limited by guarantee under the Corporations Act 2001 (Cth). It held a general meeting at which a special resolution to apply for such registration was put to its members.  Only 161 members eventually attended the general meeting with 747 members voting in person or by proxy. That resolution, which was required to be passed by 75% of the voting members, was passed by effectively one vote.

Mr Roger Clarke (Clarke) is a member of the Society and a vocal opponent of the resolution that was put to the members at the general meeting.

Clarke challenged the special resolution on grounds being:

  1. ASC failed to send to each member in accordance with its rules because it was not sent to members who had not provided the Society with their email addresses or members who had opted out of receiving marketing communications from the Society:
    • notice of the proposed alterations of rules;
    • a memorandum prepared by opponents of the proposed alteration; and
    • the matter proposed to be changed showing the alteration proposed.
  2. ASC failed to comply with its rules in that:
    • notice of the meeting was not sent to each member, as members who did not have a recorded email address did not receive a notice;
    • those that did receive an email notice, it was not received in readable form by some members;
    • the notice of the meeting was a hyperlink to a notice, which is not ‘attached or contained’ by the email;
    • the information in the notice of the general meeting and explanatory memorandum which were hyperlinked in the email was materially misleading, in that the alterations were significantly different, not minor changes;
    • three proxies ruled invalid at the meeting ought to have been counted because they contained only minor errors, there was no doubt as to the voting intentions, and they could have been remedied before the meeting.
    • the conduct of the President of the Society in determining the procedures to be followed at the general meeting was wrong and in breach of his duties as chair of the meeting as he:
      • failed to take steps to ensure a reasonable opportunity for argument;
      • curtailed debate by members by imposing strict time limits; and
      • refused to permit questions from members present at the meeting.

The Court found that ASC had not complied with its rules as the notice was not sent to each member. Members without a recorded email address did not receive the notice as well as those who had opted out of receiving marketing materials.  The notice could not be regarded as marketing material.  Further, the email did not “include” a memorandum prepared by opponents of the proposed alteration, as required by the rules.

The Court found that, as the current rules were to be entirely replaced by a new set of rules, the issue that there was no marked-up version provided to members was at best a “highly technical breach.”

The Court found that the obvious intent of rules was to give members significant advance notice of resolutions which altered ASC’s rules to give the members sufficient time (3 months) to consider and debate the proposed alterations. The notice of meeting only gave them 3 weeks.

Although ASC could send notices by email to its members, if they had not registered an email address, then it had to be sent physically to them in accordance with the rules of ASC. The Court noted that even if this was a small number of the special resolution was passed by only one vote, and this was a significant breach.

Clarke gave evidence that the email sent to him was not in ‘readable form’. He alleged the mis-formatting had something to do with his computer being configured to display emails in plain text, but the Court could not find evidence of this applying to other members and was also unclear whether this was the fault of ASC or unique to Clarke’s computer settings.

Clarke argued that a hyperlink was not the same as being ‘sent’ a document, as a hyperlinked file “is not attached to or contained in the email but is able to be accessed and downloaded by the mail recipient taking steps to access a remote server where the file is contained, and downloading the file”. The Court found after considering a number of cases on the matter that the information or data in the hyperlinked files was not “sent” to the recipients of the email having regard to the definition of “send” in the Rules.

The email itself (without the hyperlinked documents) did not satisfy the requirements of information specified in ASC’s rules and fully and fairly inform members of what is to be considered at the meeting and for which their proxy may be sought.

Clarke contended that ASC engaged in conduct that was misleading or deceptive, or likely to mislead or deceive, contrary to s 18 of the Australian Consumer Law, which is Schedule 2 to the Competition and Consumer Act 2010 (Cth). The conduct was that the explanatory memorandum conveyed the misleading impression that the proposal the subject of the special resolution involved only minor alterations to the objects and certain changes that were required by the Corporations Act.  He also contended that the provision of a misleading notice or meeting was “contrary to common law duties”.

The Court found no reason why corporate law decision principles about directors who propose that a company’s members take a particular course of action being “under a duty to make full disclosure of all facts within their knowledge which are material to enable the members to determine what action to take” should not apply to incorporated associations. On balance, the Court found the materials misleading and letting members find the truth via a nested series of link through hyperlinks was not the same as the notice and its explanatory memorandum fully and fairly disclosing the nature of the proposal and its changes.  The Court noted that it found no intent to mislead or that in fact any member had actually been misled.

The Court found that given the rules of ASC power the Chair and CEO could authorise another to validate the proxies, but found that person had erred in invalidating some proxies for clerical errors (incorrect membership numbers provided). A member or former member who had submitted a proxy was ineligible under the rules to vote because they had not renewed their membership, or had not paid all outstanding fees or dues.  Some members who were in this position were contacted to correct this situation while others were not, and the Court found this inconsistent and unfair.

Clarke challenged the conduct of the general meeting claiming the President breached his powers or duties as chair of the meeting in relation to the determination of the procedure to be followed at the meeting. It was contended that the President unreasonably stymied or prevented any real discussion or debate in relation to the special resolution and that the members present at the meeting, including those opposed to the special resolution, were not given a fair opportunity to discuss and debate the resolution. It was claimed that:

  • the President’s opening address (15 to 20 minutes), mainly related to the special resolution and was mostly supportive of the resolution;
  • the President permitted only 8 members to speak in relation to the special resolution, 4 in favour of the resolution and 4 against it, and those presentations were strictly limited to 2 minutes in length;
  • the President announced that there would be no questions;
  • the President summarily rejected, without discussion or reasons, Clarke’s “point of order” in relation to the procedure announced by him;
  • the end result was that there were no questions from the floor;
  • the President made some brief concluding remarks which were again supportive of the special resolution and votes were then taken and counted; and
  • the meeting in its entirety, including the time taken to count the votes, only took about one and a half hours.

The Rules are largely silent concerning the powers of the chair, but the Court found that, in the absence of any express powers, the chair of a meeting has the implied power to, amongst other things, regulate and control the proceedings, including the manner in which resolutions are considered and debated. Further, that in exercising his or her powers, the chair must act not only in good faith but also reasonably and for the purposes for which the powers were conferred.  The Court found for Clarke saying:

It is, in all the circumstances, impossible to conclude otherwise than that [the President’s] curtailment of the debate was manifestly unreasonable and was not taken with a view to facilitating the proper debate and consideration of the special resolution.”

Again the Court rejected that the breach was immaterial or could or would have made no difference to the vote, particularly given the closeness of the vote.

In summary, the Court found for Clarke as the cumulative effect of all the breaches, defects or deficiencies was unquestionably significant and serious in terms of the lawfulness and validity of the general meeting and the special resolution that was passed at it. This was exacerbated by the extremely slender margin by which the resolution was passed.

The Court declared that the general meeting a special resolution were invalid and permission to apply to ASIC to have the registration set aside.

Implications

This case serves as a salutary warning to abide by the rules of the association in relation to calling meetings, providing appropriate information to members without being ‘tricky’ or ‘cute’. Members should be given appropriate information to make an informed decision about the matters to be discussed as well as meeting procedures which are fair in all the circumstances.

The practice of hyperlinking documents in emails or even in printed notices with URLs should be carefully considered in light of the law and the association’s rules.

[1] Clarke v Australian Computer Society  Incorporated [2019] FCA 2175 Federal Court of Australia, Wigney J, 23 December 2019