8 August, 2015
Australasian Centre for Corporate Responsibility v Commonwealth Bank of Australia [2015] FCA 785
WHAT YOU NEED TO KNOW
- The Corporations Act (in section 249N) gives a right to 100 or more members to propose a resolution at a general meeting.
- On 31 July 2015, Justice Davies of the Federal Court of Australia handed down her judgment in Australasian Centre for Corporate Responsibility v Commonwealth Bank of Australia confirming the widely- accepted view in Australian law that members cannot require a resolution to be put at a general meeting that seeks to express an opinion as to how powers reserved to the board of directors should be exercised.
- The decision also confirms that it is open to directors to express a view concerning a resolution proposed by members under section 249N. They can also include a recommendation that members vote against the proposed resolution. Making statements of that kind is consistent with the duty of directors to provide material to fully and fairly inform members of the matters to be considered at the meeting to enable them to make a properly informed decision.
- Advocacy groups have a number of methods available to them to seek to have their views expressed at annual general meetings. This decision confirms that requesting companies to put "opinion resolutions" to a general meeting is not one of them.
Background to ACCR v Commonwealth Bank of Australia
The Australasian Centre for Corporate Responsibility (ACCR) was founded in 2013 and seeks to promote "informed shareholder engagement and advocacy for more just and sustainable corporate activity." Since this time, the ACCR has utilised section 249N to propose resolutions at a number of general meetings of ASX listed entities, including major Australian banks and energy companies.
In 2014 the ACCR, representing over 100 members of CBA entitled to vote, gave CBA notice under section 249N of three resolutions for consideration at CBA's 2014 AGM.
The first two resolutions were expressed to be ordinary resolutions (ie requiring only a simple majority to be passed) drafted in terms of the "opinion of the shareholders" or that "the shareholders express concern" in relation to certain matters in connection with greenhouse gas emission disclosures.
The third resolution was proposed as an alternative to the first two resolutions as a special resolution to amend CBA's constitution to insert a rule requiring the directors to report annually on matters relating to greenhouse gas emissions.
CBA's Notice of 2014 AGM only included the third proposed resolution, which was ultimately not passed by members. Neither of the two ordinary resolutions were included in CBA's Notice of 2014 AGM because CBA formed the view that they were "matters within the purview of the Board and management of the Bank", and accordingly were "not valid and capable of being legally effective".
The ACCR sought certain declarations, including that the two ordinary resolutions it proposed could be validly moved at the AGM.
Powers of the general meeting
Under Australian company law there is a general principle that the members in general meeting cannot interfere in the board's exercise of powers which are exclusively vested in the board.
Most company constitutions (similar to the approach in the Corporations Act replaceable rules) provide that the board of directors has the power to manage the business of the company and that the board may exercise all the powers of the company that are not otherwise required to be exercise by the company in general meeting.
It follows:
… that directors, within their management powers, may take decisions against the wishes of the majority of shareholders, and indeed that the majority of shareholders cannot control them in the exercise of these powers while they remain in office ….(Howard Smith Ltd v Ampol Petroleum Ltd (1974) 1 NSWLR 68 at 79).
Accordingly, the only way the members in general meeting can control the exercise of powers vested in the board is to change the company's constitution by special resolution (or, if the opportunity arises, by removing or replacing directors). It follows that the limitation on the members' ability to control the manner in which the directors exercise their powers also prevents members from expressing an opinion by resolution on how those powers should be exercised. This was the view taken by the New South Wales Supreme Court in National Roads & Motorists' Association v Parker (1986) 6 NSWLR 517.
ACCR's submissions
The ACCR submitted that Parker was wrongly decided and argued that shareholder resolutions containing non- binding expressions of opinion do not impinge on the exercise of powers of other organs of the company and can therefore be validly made. It accepted that members cannot, under normal constitutional arrangements, move a resolution that purports to direct the board in the exercise of its powers. However, the ACCR argued that a non- binding "opinion" resolution:
- is not an exercise of the company's powers;
- is an exercise of power that is not impliedly conferred by the constitution on the board and does not purport to compel the board to exercise its express powers in any particular way; or
- does not relate to the "business of the company". Each of these submissions was rejected by Davies J.
First, Her Honour rejected the submission that Parker was wrongly decided and did not accept that the judge in that case had conflated the expression of an opinion in respect of the exercise of a power with the exercise of the power itself. Her Honour found no support for that argument in Australian authorities.
Secondly, Her Honour rejected the argument that members in general meeting have an implied constitutional power to express views on the way in which the business of the company is managed. In doing so, she stated that the only powers that members have, other than those provided in the company constitution, are those required to be performed by the company in general meeting by the Corporations Act, and that the Corporations Act provides no power to pass non-binding resolutions (other than specifically in respect of the non-binding resolution on a listed company's remuneration report).
The ACCR also argued that the power to express opinions by resolution could be read into section 249P of the Corporations Act when read in the light of sections 249N and 249O (provisions allowing members to request the company to provide statements to all members regarding proposed resolutions). Davies J rejected this reading of the relevant provisions, noting in particular that section 250S provides members with their opportunity to ask questions and comment on the management of the company in the general meeting.
Thirdly, Davies J rejected the ACCR's argument that, for reasons of business efficacy, the grant of management power to the board in CBA's constitution should be read down so that the expression of an opinion by members does not constitute the "business of the company". It was not necessary to read down the constitution in this way, in particular where members have an opportunity to express opinions at a general meeting in accordance with section 250S which gives members in general meeting the right to express views on the company's management.
Finally, the ACCR submitted that, as section 250R(1)(a) provides that the business of the annual general meeting includes consideration of the company's statutory reports, members also had the power to pass a resolution expressing an opinion regarding the contents of those reports. This was rejected on the basis that when section 250R was read in its entirety, the only power for the members to vote in an advisory capacity was on the remuneration report.
Ability of the board to discuss the merits of, and recommend against, a proposal
The final submission from the ACCR related to the special resolution to amend the company's constitution that was included in the notice of AGM. The explanatory memorandum that accompanied the notice contained statements expressing the board's view regarding this resolution, in particular expressing its opinion that members should vote against the resolution. The ACCR submitted that this was beyond the board's powers.
CBA pointed to the duty of directors to provide shareholders with sufficient material to make a fully and fairly informed decision, and to the ASX Guidelines for notices of meeting that require voting forms to be drafted so that shareholders clearly understand how the chairman intends to direct proxies and are given clear guidance on the directors' recommendations on resolutions. Davies J accepted that this duty, and the powers provided to the directors under the company's constitution, were sufficient to support the statements made in the explanatory memorandum.
For further information, please contact:
John Sartori, Partner, Ashurst
john.sartori@ashurst.com
