GAMING & LEISURE Alert – Member Meeting Notices – The Law just got much tougher!

27 July 2017

Publications

The Supreme Court of NSW recently issued an injunction to prevent a Special General Meeting of members considering approval of a major residential project. This is a very important decision for all clubs when deciding what to put in their notices to members.

What happened?

Castle Hill Country Club had been exploring opportunities to significantly redevelop its members’ facilities and optimise the commercial use of the Club’s valuable land. The Club was at the point of entering into an agreement with a commercial property developer.

The Club’s Board called a General Meeting of members to get the necessary approvals under its Constitution and the Registered Clubs Act. It sought in just the one resolution to declare the relevant property non-core, and to also get broad approval under its Constitution for “any sales, entering into liabilities, any spending or commitment of a corpus amount, and any borrowings, approved by the Board in connection with any redevelopment with the PRA”.  (* PRA meant possible redevelopment area)

What went wrong?

An aggrieved member sought an injunction from the Supreme Court of NSW.  He argued that the information provided to the members in the Notice of Meeting and explanatory notes was inadequate. The Supreme Court agreed that there was a serious question to be tried that:

  1. The Resolution would be ineffective for the purposes of the Registered Clubs Act and the Club’s Constitution as an approval to enter into sale and other commitments in connection with any proposed redevelopment; and
  2. The Explanation was inadequate, in breach of the directors’ fiduciary obligation of full and proper disclosure – such that the Notice was invalid or ineffective to convene a lawful General Meeting of the Club.

As a result, the Supreme Court restrained the meeting and therefore the Club could not get the approvals it needed to proceed with the project.

The consequences?

 The considerable amount of time and money that the Club had put into working up the development proposal to that stage may be wasted.  If the Club still wishes to proceed with the project, it will now have to redraft the Notice taking extreme care to ensure that it provides a full explanation in line with the Judge’s decision. This may be easier said than done!

The Judge’s findings also raised concerns about whether the directors had fulfilled their duties to the Club’s members.  This is unfortunate as directors would normally rely on advice received as to the legal validity of the notice.  Whilst he observed that all those involved (including the directors) were genuinely acting in the best interests of the Club and its membership, this was not enough to save the notice.

The decision

The Club also took the unusual approach of combining the general non-core resolution needed under section 41J of the Registered Clubs Act with quite specific approvals required for certain steps under the Club’s Constitution.  This made it impossible to salvage any part of the Resolution.  This is not an approach we would ever take.

Non-core resolutions should be completely separate from resolutions needed under particular requirements in a club’s constitution. Each resolution should be put separately to the members.  For example, if a resolution is needed to sell the property, that should be separate from a resolution needed to authorise debt for a project.  In this Castle Hill Country Club case, there should have been at least 3 separate resolutions.

 The Judge held that the members should have been given much more information about the specific proposal, the sums of money involved and the amount of any borrowings. Also, as it was clear that a specific developer was most likely to carry out the project, information should have been provided about that developer. Most importantly, the Judge held that the broader the authority that the Board seeks from the members, the fuller the reasons need to be to justify the breadth of the mandate, how that mandate is likely to be exercised, and the reasons in support of it.

What does this mean for your club?

Some key lessons to take away from this case:

Every Notice of General Meeting that requires the members to exercise their skill and judgement in passing a particular resolution must contain full and proper explanatory notes to the resolution.

  • Directors may be found to have breached their duties for not providing sufficient information in a Notice of General Meeting.
  • Never combine separate approvals into one resolution. If one part of the resolution is found to be invalid, then the whole of the resolution will most likely fail.
  • The Notice of General Meeting is a legal document. This case shows that it needs to be carefully drafted to address the very specific circumstances of your club.
  • Do not attempt to use “standard resolutions” – there is no such thing!

For more information please contact:

Brett Boon | Partner | +61 2 8248 5832 | bboon@tglaw.com.au

Read the full case here: Kahler v Castle Hill Country Club Ltd [2017] NSWSC 851