The Supreme Court of NSW has 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. It was at the point of entering into an agreement with a commercial third party property developer. 

The Board of the Club called a General meeting of members to get the necessary approvals under the Registered Clubs Act and its Constitution. It sought in one resolution to declare the relevant property non-core and also to get specific 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? 

A club member sought an injunction from the Supreme Court of NSW on the basis that the information provided to the members by the notice and explanatory notes was inadequate. The Supreme Court held that there was a serious question to be tried that; 

• 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
• 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 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! Also the Judge found that the directors had probably breached their duties towards the Club. This is unfortunate as the directors would normally rely on the advice they received as to the legal validity of 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 rules.  This made salvaging anything out of the Court's decision impossible.  This is not an approach we would ever take. 

Non-Core Resolutions should be completely separate from resolutions needed because of particular requirements in a club's rules. 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 the Castle Hill case there should have been at least three 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, then 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 both the breadth of the mandate and how that mandate is likely to be exercised, and the reasons in support of it.  

What does this mean for your club? 

Every notice of meeting that requires the members to exercise their skill and judgement in passing a particular resolution must be fully and properly explained in the notes to the resolution. Never combine separate approvals into one resolution because if one part of the resolution is found to be invalid then the whole of the resolution will most likely fail. Worse still, directors may be found to have breached their duties.  The Notice of resolutions is a legal document and 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 further information please contact Partner Brett Boon.

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