Weinstock v Beck [2013] HCA 14
On an appeal by special leave from the New South Wales Court of Appeal, the High Court unanimously held that the power in section 1322(4)(a) of the Corporations Act 2001 (Cth) to declare an act not invalid was available for an appointment purportedly made under the article for continuing directors by a person whose own appointment had lapsed nearly thirty years earlier, and remitted whether to make the order and to wind up the company.
What the court decided
The power allows the court to declare that an act purporting to have been done under the Act or in relation to a corporation is not invalid by reason of a contravention of the Act or of the corporation's constitution [9].
The founding directors of LW Furniture Consolidated (Aust) Pty Ltd were Leo and Hedy Weinstock, the parents of Amiram Weinstock and Tamar Beck [14], [45]. The two children were appointed directors in 1973 to hold office until the next annual general meeting [46]. It was accepted in the High Court that both appointments ended at the start of that meeting, so later reappointment resolutions did not reappoint them [46]. French CJ noted that no shareholder held voting shares [24].
In July 2003 Leo Weinstock died and Hedy Weinstock could no longer act, leaving Amiram Weinstock as the only person claiming to be a director, below the quorum of two [20], [47]. Amiram Weinstock then purported to appoint his wife, Helen Weinstock, as a director under article 87, which allowed continuing directors to act to restore the quorum [25], [47]. It was not disputed in the High Court that the appointment was invalid [48].
Mrs Beck sought to have the company wound up as just and equitable, because it had no directors and no means of validly appointing any [3]. Barrett J declared that the appointment was not invalid by reason of Amiram Weinstock not holding office as a director [3], [31]. The Court of Appeal, by majority (Young JA and Sackville AJA, Campbell JA dissenting), set that declaration aside [3]. Amiram and Helen Weinstock appealed to the High Court by special leave [4].
Hayne, Crennan and Kiefel JJ, in joint reasons, held that the provision gives no basis for distinguishing what cannot be done at all under the Act or a constitution from what can be done but was not done validly [52]. Their Honours held that the power is not to be cut down by any implied limitation; no basis for implying one was identified, which was reason enough to reject the Court of Appeal's construction [55]–[56]. An appointment not made in accordance with the articles was made in contravention of the constitution, and it made no difference that Amiram Weinstock could not have been given the power [54].
French CJ, writing separately, reached the same conclusion and agreed with the joint orders [44]. His Honour rejected a distinction between failing to meet a condition of a power and purporting to exercise a power one does not have [42]. In his Honour's view, extreme cases, such as a stranger appointing another stranger, are met by the discretion and section 1322(6); this was not one, because Amiram Weinstock was no stranger and had acted as a director for thirty years [43].
Gageler J, concurring in separate reasons, preferred the answer of Campbell JA, who had dissented in the Court of Appeal [63]. His Honour said the provision cannot achieve a result never attainable under a constitution, but can where it is attainable in some circumstances [65]. Applying it, his Honour held that Amiram Weinstock's act, when he was not an existing director, was a contravention, though he could not then have been appointed a director [67]. That qualification is his Honour's own; the joint reasons held that the words of the provision give no basis for distinguishing what cannot be done at all from what can be done but was not done validly [52]. Gageler J joined in the orders proposed by Hayne, Crennan and Kiefel JJ [68].
The High Court allowed the appeal with costs and set aside orders 3 and 5 of the Court of Appeal made on 5 April 2012 [57]. In their place, the matter was remitted to the Equity Division of the Supreme Court of New South Wales to determine whether an order should be made under section 1322(4)(a) and whether the company should be wound up [57]. The appellants were ordered to pay 80 per cent of the costs of the appeal and cross-appeal to the Court of Appeal, which they had accepted was appropriate [57].
Why it matters
The decision does not decide that an order will be made, or whether to wind up the company: both questions were remitted [57]. The court must be satisfied of one of the alternatives in section 1322(6)(a), such as that the order is just and equitable, and in every case that no substantial injustice has been or is likely to be caused to any person [10].
Barrett J had reasoned that, with Helen Weinstock validly in office, the board could be brought to a quorum and voting shares issued [30]. In my view, that reasoning makes an application worth considering where a closely held company finds a long-standing defect in its directors' appointments. Readers should check the current text of the Act before relying on the decision.
Numbers in square brackets are paragraph numbers of the judgment. This note summarises a decided case for education and is not legal advice. See how the notes are written.