Australian Corporate Lawyer - Autumn 2016

theAustraliancorporatelawyer
WHEN THE COURT WILL FIX
YOUR MISTAKES: SECTION 1322
IN THE HIGH COURT
Mark Gerus
Mark is a partner in Gilbert + Tobin's Litigation
group. Mark specialises in litigation for mining
and petroleum companies and provides
assistance and advice on complex contentious
and strategic issues in the resources sector.
Tim O’Leary
Tim is a partner in Gilbert + Tobin’s Litigation
group. Tim specialises in corporate, commercial
and resources litigation, particularly for mining
and petroleum companies. He acts for clients
in relation to contractual disputes, insolvency
disputes, regulatory investigations and
Corporations Act matters, including schemes
of arrangement.
Section 1322 of the Corporations Act 2001
(the Act) provides that a proceeding
under the Act is not invalidated because
of any procedural defect unless that defect
causes substantial injustice. A Court can
make orders under section 1322 to deal with
omissions, errors, defects and irregularities,
including an order that acts or matters
that contravene the Act or a company’s
constitution are not invalid “by reason of any
contravention” of the Act or constitution.
In Weinstock v Beck 1 the High Court held that
the words “by reason of any contravention”
do not provide any basis for distinguishing
between what cannot be done at all under
the Act or constitution of a company and, on
the other hand, what can be done but has not
been done validly. This is significant because
it means that an assessment of acts that can
potentially be the subject of an order should
be conducted inclusively and applying the
broadest possible definition of “contravention”.
The decision in Weinstock v Beck
In Weinstock the relevant conduct by Mr
Weinstock was to exercise a power that he
did not have. On 30 July 2003, Mrs Weinstock
was appointed as an additional director of
LW Furniture Consolidated (Aust) Pty Ltd by
Mr Weinstock, her husband. Mr Weinstock
had been a director of the company. While
he had acted as director for some 30 years,
his appointment had lapsed on 31 December
1973 by operation of the company articles.
Ms Beck, who had also been a director of
the company, applied for an order that the
company be wound up on the basis that
it was just and equitable to do so because
it had no directors and no means of validly
appointing directors.
At first instance, the Court dismissed the
winding up application and made an order
under section 1322(4)(a) that Mrs Weinstock’s
appointment as a director was not invalid by
reason of the fact that Mr Weinstock did not
hold office as a director at the time of the
appointment. Justice Barrett accepted that
Mr Weinstock’s purported appointment of
Mrs Weinstock was not properly authorised
(because Mr Weinstock was not a director at
that time), and was therefore a “contravention”
of the constitution. His Honour noted the
significance of this conclusion.
Further, the contravention here was a matter
of substance rather than of form or procedure.
That is, the appointment of Mrs Weinstock
was not defective, but was a nullity (in that
there had not been any appointment) 2 and so
it was necessary to consider whether section
1322(4) could apply. Justice Barrett noted that
the section provides expressly that the court is
given power to declare “not invalid” that which
is in truth “invalid”, so that a case of nullity is
clearly covered 3 .
Justice Barrett’s decision was overturned by
the NSW Court of Appeal. A majority of the
Court of Appeal determined that an applicant
must bring themselves within the language
of section 1322, and the acts of somebody
who had never been validly appointed could
not properly be considered a “contravention”.
The majority (Sackville AJA and Young JA)
noted that there was no procedure that
Mr Weinstock could have validly used to
appoint her under the Act or the company’s
constitution, and that section 1322 had to be
read to exclude the ability to validate acts that
could not have been validly done by following
any procedures in the Act or the company
constitution 4 . Young JA noted that without
such a restrictive reading, section 1322 “would
cover almost every invalid action in the face of
the express limitation in s1322(6)” 5 .
The minority in the Court of Appeal (Campbell
JA) held that there was no basis for imposing
such a limitation on section 1322(4) 6 , and to
do so would be contrary to High Court
authority that provisions conferring
jurisdiction or granting powers to a court
are not to be read by making implications or
imposing limitations which are not found in
the express words 7 .
The High Court’s approach
in Weinstock
The High Court took a similar approach to
Campbell JA in the Court of Appeal and
held that the section should be applied
pragmatically. Chief Justice French stated that
it is not only the evident purpose of section
1322(4)(a) but its field of operations which
requires the broadest available construction
of “contravention”. His Honour also noted that
it is not in the public interest that the validity
of decisions made in relation to corporations
be “unduly vulnerable to innocent errors
which can be corrected without substantial
38 VOLUME 26, ISSUE 1 – AUTUMN 2016