McComiskie v Smith

This case concerned the appointment of a director. A majority of the members of the Company at a general meeting sought to appoint a new director, and this action was opposed by a minority of shareholders. The Company’s constitution gave powers to the members to, in certain circumstances, appoint and remove directors. The respondents contended that the Company’s constitution excluded the general law powers of the members in general meeting to appoint directors. The Court accepted this argument following a detailed consideration of the company’s constitution.

Crowley J

5 April 2024

Gleeson Properties Pty Ltd (“the Company”) was a family business controlled by the late John Gleeson and his five children, all of whom were parties to this proceeding. [1]–[2]. In 2014, all five children were directors and members of the Company. [3]. In June 2014, Paul Gleeson, tendered his resignation as a director. [5]. The minutes of the meeting recorded that Paul Gleeson’s position would remain vacant “with the option of him to return at a future date”. [5]. In late 2023 he sought consent from the other directors to return to the Company. [7]. The respondents, including the managing director, Therese Smith, opposed his return, on grounds including that he had a conflict of interest with the Company. [8]. The applicants assisted his return by holding a general meeting of the company’s shareholders, in which he was reappointed as a director on certain conditions. [12]. A dispute arose about the validity of the appointment.

The dispute turned on the proper interpretation of the Company’s constitution. [19]. In general, a company, embodied by its shareholders in a general meeting, has an inherent power to nominate and appoint a director by passing an ordinary resolution. [35]. However, that power can be excluded by the constitution. [35]. In this case, the Company’s constitution contained three specific provisions for the appointment of directors. [29]. First, it provided that upon the death, resignation or disqualification of a director the directors could appoint a person to fill the casual vacancy. [29]. Second, upon removal of a director, the constitution allowed the general meeting to remove a director and appoint another person in their stead. [29]. Third, upon the members resolving to increase the number of directions – any exercise of power by the directors to appoint an additional director must follow an increase in the number of directors by a resolution of members. [29], [71].

The issue was whether the grant of these specific powers ousted the inherent power of the members in general meeting. The Court held that it did for three key reasons.

First, the company’s constitution allowed the general meeting to increase or reduce the number of members but did not allow for other related powers. [62]–[64]. For example, in the case of Worcester Corsetry Limited v Witting [1936] 1 Ch 640 (where the constitution did not oust the inherent power of the general meeting), the Company’s constitution gave a power for the members to determine “in what rotation the increased or reduced number is to go out of office”. [39]. The Court considered that this omission indicated that the power of the general meeting was limited to determining how many directors were to hold office. [63].

Second, the directors were given the power to appoint “any person to be a director either to fill a casual vacancy or as an addition to the existing directors” although this power was limited by the number of directors fixed by the shareholders. [66]. Again, in Worcester, the director’s powers to do so was limited to the appointment of an “additional director” who would be eligible for election at the next ordinary general meeting. [68]. In this case, the directors’ broader power indicated that the power to appoint (subject to the number of directors chosen by the shareholders) was given to the directors. [74]–[75].

Third, the ability of the shareholders to remove a director and appoint a new one in their stead demonstrated an intention that the members retain a right of control over the management of the company, in that they could replace persons appointed by the directors. [74].

As a result, the Court held that on the proper construction of the constitution, the general meeting was not empowered to appoint a director, as their inherent power to do so was excluded by necessary implication. [76]. As such, Paul Gleeson was not validly appointed. [75]–[76].

L Inglis