Feature Articles
Revealing the boundaries of a ‘material personal interest’
The recent case of Grand Enterprises Pty Ltd v Aurium Resources Ltd [2009] FCA 513 has shed light on the meaning of an otherwise unclear term of what constitutes for a director, a ‘material personal interest’.
Whilst judicial consideration of this term has been minimal, it plays a vital role in the operation of sections 191 and 195 of the Corporations Act 2001 (Cth) which require disclosure of a ‘material personal interest’ to the board and exclude directors of public companies who have a ‘material personal interest’ in the matter from being present while the matter is being considered or voted on at a directors’ meeting.
This case concerned a purported variation of a joint venture between Aurium Resources Ltd (Aurium) and Greater Pacific Gold Limited (GPN) and a general meeting called to approve an issue of shares to GPN.
The first director declared an interest due to the fact he was chairman of both Aurium and GPN, as did two other directors due to direct and indirect shareholdings in Aurium and GPN.
The issue arose when only the first directors’ interest was disclosed in the explanatory memorandum for the shareholders meeting.
Once this new share issue was approved, GPN sought to prevent Aurium from acting on this claiming the resolution of the board was invalid under s 191 and s 195.
This claim was denied as the Court held the interests will only be ‘material’ where they have the capacity to influence the directors’ consideration of and vote in relation to a matter before the Court. Furthermore, the term ‘personal interest’ was held not to extend to the situation where a director has a conflicting duty unless there are additional facts that create an interest for the director such as remuneration or other benefits or incentives relating to the transaction.
Despite this case, interests of this type can cause problems for directors who remain under a fiduciary duty to avoid situations where there is a real possibility that they will have conflicting duties which are in addition to the Corporations Act requirements.
Federal Court illustrates the extent of the Spam Act
On 22 May 2009, the Federal Court handed down a decision in the case of Australia Communications and Media Authority v Mobilegate Ltd [2009] FCA 539 which decisively stated that the sending of unsolicited SMS is within the ambit of s16(1) of the Spam Act 2003 (Cth) (Spam Act) and companies in contravention may be restrained.
The proceedings in Australian Communications and Media Authority v Mobilegate Ltd [2009] FCA 539 were the first proceedings brought under the Spam Act for the sending of unsolicited SMS and establish decisively that the powers of this Act now extend beyond restraining simply unwanted email communication.
It was found that these unsolicited SMS constituted a contravention of the Spam Act, which states in s16(1) that a person must not send, or cause to be sent, an unsolicited commercial electronic message originating in, or linked to, Australia.
Attention then turned to whether of not an interlocutory injunction was appropriate to prevent this practice until the final determination was handed down. The Court followed Australian Broadcasting Corporation v O’Neill [2006] HCA 46 in holding that the prosecution needed to establish a prima facie case against the respondents, as well as demonstrate that the balance of convenience favoured restriction of the behaviour.
The Court ultimately determined that the there was a strong prima facie case against Mobilegate, and that there was little to be lost on their behalf if they were to be restrained from continuing to send unsolicited SMS until the final determination was made.
In its judgment the Court granted interlocutory orders against three companies for allegedly sending unsolicited SMS in breach of the Spam Act.
The fine line between ‘Was’ and ‘Now’ pricing
The Federal Court of Australia at 15 February 2008 found that quoting an inflated ‘Was’ price to give the appearance of a currently discounted ‘Now’ price is both misleading and deceptive under sections 52 and 53 of the Trade Practices Act.
The Federal Court’s decision in ACCC v Prouds Jewellers [2008] FCAFC 199 demonstrates that a business which advertises a product at a discounted price is now obliged to have actually discounted it.
This case revolved around product advertisements published by Prouds which consisted of a ‘Was (Price)’/ ‘Now (Price)’ statement designed to encourage the belief in consumers that the product was being sold at a discount relative to a price at which it was normally sold.
There is obviously no issue with this practice if the product for sale has previously been sold at this ‘Was’ price, however, in this case the goods had not been sold at the advertised ‘Was’ price for some times (over 12 months in the case of a particular piece of jewellery). The court held that the only valid use of a ‘Was’ price is to make reference to the price at which the good was sold immediately before it was discounted and anything else is misleading and deceptive under the Trade Practices Act.
This case highlights the need for businesses to be aware of their own discount policies and cycles and to ensure that they accurately reflect recent price structures when any comparative pricing information is published.
Recent News
Toll and Asciano hire scheme exposed
The Federal Court has found that a personnel agreement by Toll to provide Asciano with casual employees had “the potential to stifle competition and contravened a provision banning the sharing or secondment of employees between both companies.”
Toll had argued that for ‘sharing’ to occur the employee’s must work for both companies, however, this was rejected as too narrow a view. Justice Peter Grey stated that “the fact that no employment relationship arises between the employee and one of those persons is of no significance.” Toll was not fined for the breach but was ordered to pay the ACCC’s court costs.
ACTU call for preference of local tenders
A plan to allow Australian and New Zealand companies a 25 per cent price advantage when bidding for government contracts was to be put to the ACTU Congress when they met in early June.
The plan would force government departments and agencies to purchase from a list of price and quality competitive regional suppliers with a 25 per cent price advantage given to local companies to stabilise the economy by encouraging the creation and retention of jobs within Australia.
Small businesses to benefit from tax reforms
Current tax concessions for research and development will be simplified in the Federal budget in a reversal of the previous government’s decision to halve the research and development concession. Smaller firms with turnover of $20 million or less will be eligible for a 45 per cent refundable credit, equivalent to a 150 per cent tax concession, while firms with turnover of greater than $20 million will be able to access a tax credit of 40 per cent, the equivalent of a 133 per cent tax concession.
The costs of these reforms, which take effect from July 1 2010, has been forecast at $1.4 billion over four years. The Government says revenue saved from the changes will offset the cost.
Recent Proposed Legislation
Disclosure of debentures and promissory notes
In an effort to boost transparency for the benefit and protection of investors in Australia, the Corporations Legislation Amendment Bill has been released in an attempt to synchronise the legal regimes relating to debentures and to promissory notes.
Under this legislation all retail debentures and promissory notes will be subject to a suite of wide ranging consumer disclosure requirements which currently only apply to debentures.
The Minister for Superannuation and Corporate Law, Senator Nick Sherry, stated that these changes “are a decade overdue” and will significantly reduce the risk of investor losses.
Franchisors affected by unfair contract legislation
The “unfair contracts” legislation scheduled to be introduced to Federal Parliament in June this year may affect franchise agreements by providing a powerful weapon for franchisees to challenge the fairness of agreements with franchisors. The legislation applies to any type of “standard form” agreement, including standard agreements used by franchisors when contracting with franchisees.
The “unfair contracts” legislation may prohibit contracts in which there is a significant imbalance between the rights and obligations offered to the franchisor and those offered to the franchisees. Examples of unfair contract terms could include clauses giving the franchisor disproportionate power to terminate an agreement, high transfer fees, or oppressive changes in supply arrangements. It is expected that the legislation, in the form of amendments to the Trade Practices Act will come into effect on 1 January 2010.
Recent Cases
Strict consequences of a failure to notify ASIC of a variation in the liabilities secured by a charge
In Re Octaviar Ltd; Re Octavier Administration Pty Ltd [2009] QSC 37 the Queensland Supreme Court determined the consequences of a failure to notify ASIC of an increase in a company’s liabilities secured by charge. At issue was the effect of a charge over Octaviar Ltd that the Public Trustee of Queensland contended was invalid under s268(2) of the Corporations Act 2001 (Cth); a provision which requires any variation to be reported within 45 day.
The Supreme Court held that if changes are not reported, the charge will become void in the event of a winding up, administration or a deed of company arrangement to the extent of any relevant increases. This decision has the potential to affect a large number of secured finance arrangements where an increase in liabilities secured by a charge is yet to be reported.
In light of this decision it would be prudent to review existing financing arrangements and to ensure ASIC is notified of any variations in liabilities secured by registered charges.
When is a general meeting called?
In the case of NSX Limited v Pritchard [2009] FCA 84, two meetings of NSX Limited were convened, one by the directors’ and the other by a group of shareholders. Both these meetings purported to have the same effect of removing the present directors’ and thus both parties agreed it would be wasteful for both meetings to go ahead, however, the parties could not agree on which one would proceed.
In deciding whether the directors’ meeting had been called within the 21 day period after the request was given by the members as necessary under s249D(5) of the Corporations Act 2001 (Cth), the Court had to decide what constitutes the calling of a meeting.
Although the directors had resolved that the meeting be held at a specified time, on a specified date, at a specified place and that notice of this meeting was to be settled and sent to shareholders in accordance with the notice provisions of the NSX constitution, the Court stated that the actual sending of these notices to members was essential to the calling of a meeting, and thus no meeting had been called.
Good faith term implied into sales contract
The Federal Court in Insight Oceania Pty Ltd v Philips Electronics Australia Ltd [2008] NSWSC 710 has implied a term into a contract to act in good faith when specifying sales goals.
Philips Electronics Australia Ltd (Philips) had sought to terminate their contract with Insight Oceania Pty Ltd (Insight) due to an alleged breach of contract in failing to reach a specified sales goal. Insight consequently applied for a declaration that the termination notice was invalid as the specified sales goal was a figure that was not reasonably achievable and was to be qualified by an implied term of good faith. It was submitted that the parties were required to negotiate in good faith to agree on the reasonable achievable target to give business efficacy to the agreement, however, Philips refuted this belief stating that the contract explicitly stated the terms.
Sheller JA in Alcatel Australia Ltd v Scarcella (1998) 44 NSWLR 349 had previously stated this duty to co-operate in good faith cannot over-ride the express provisions of the contract, however, the court held that decisions of this nature depend upon the particular contractual provision in question, the particular contract and the particular circumstances of the case. Bergin J went on to state that the fact the plaintiff was required to provide the defendant with confidential information regarding the product without any express limitation on its use depended on the defendant acting in good faith. This term of good faith worked both ways however as the defendant relied upon the plaintiff providing accurate information.
On this understanding, the court went on to find that it was obvious the parties were to work together to identify an appropriate sales goal and implying a term of good faith would give business efficacy to this agreement.
Upcoming Events
Protecting IP in the workplace
And Restrictions that can validly be placed on employees by employers
Speakers: David Richardson, Partner
Mark Curran, Special Counsel
When: 20 August 2009
Time: 7.30am – 9.00am
Where: Level 14, 120 Edwad Street, Brisbane, QLD 4000
For more information
Alicia Hill
Partner, Dispute Resolution
T 61 7 3100 5103
alicia.hill@dibbsbarker.com
Jim Holding
Partner, Government
T 61 7 3100 5165
jim.holding@dibbsbarker.com
Scott Guthrie
Partner, Financial Services Group
T 61 7 3100 5019
scott.guthrie@dibbsbarker.com
David Richardson
Partner, IP / IT
T 61 7 3100 5037
david.richardson@dibbsbarker.com
Derek Sutherland
Partner, Franchising
T 61 7 3100 5065
derek.sutherland@dibbsbarker.com
