NRMA back in court again: Law Reporter

To what extent can general meetings and distribution of information be used to criticise those responsible for corporate issues?

As the newspapers carry further reports of apparent turmoil in the NRMA, two recently reported decisions in the New South Wales Supreme Court saw partial success for the NRMA in its battle with directors who dissented from the way in which the organisation has been governed. The decisions have some useful things to say about the extent to which members or others in a company can utilise the general meetings of companies, and the distribution of information, to criticise individuals who are responsible for corporate issues. In both cases the NRMA triumphed because, in the view of each of the two trial judges, the members had gone too far in seeking to distribute information or to have certain matters resolved at meetings. In National Road and Motorists Association Ltd v Bradley ((2002) 42 ACSR 616 the critical issue was to determine the validity of certain resolutions by members:

(i) to in effect deny legal costs to a director who had been the subject of legal action;

(ii) to reduce the number of directors in the company.

Both were challenged by the NRMA as invalid resolutions. Windeyer J upheld most of the agreements put by the NRMA. Most interestingly, the judge ruled that it was inappropriate for members of the NRMA to try to override a rule of the organisation which permitted the organisation to reimburse (to the extent permitted by law) the legal fees and costs of a director who had been the subject of litigation. The more interesting decision is that of Campbell J in National Road and Motorists Association v Snodgrass ((2002) 42 ACSR 622). The defendant and some 500 other members of the NRMA had successfully requisitioned for an extraordinary general meeting of the organisation to be held. Pursuant to the provisions of the Corporations Act the defendant had requested that a statement prepared by them should be distributed by the company for consideration by the members at the meeting. The NRMA asked the court to rule that the statement sought to be distributed by the members was defamatory within the meaning of section 249P of the Corporations Act, thus excusing the company from distributing it.

Campbell J canvassed what is meant by "defamatory" in the legislation. In this case the relevant statement was in support of the resolution for the dismissal of certain directors who it was alleged had breached their duties. Campbell J recognised that any attempt to censor material to be distributed to members might be regarded as attempting to stifle debate at the meeting. But, Parliament had intended to prevent information from being distributed to a company in general meeting if it was potentially defamatory. The issue here was whether a particular director should be dismissed or not and this related to information concerning the way in which that person had behaved as a director. The judge, mindful of the fact that if he discussed the statement he might be adding to the potential claim of defamation, made these observations: "Suffice to say that there is discussion [in the relevant statement] of circumstances in which some of the earlier affairs of the NRMA have been conducted. In relation to one particular matter, it seems to me that a reader could draw the conclusion that a person charged with carrying out some functions for the NRMA had advanced his own interests in an improper way. That is the sort of conclusion which would result in the material being defamatory. As well, it seems to me that the ordinary reader of the material could draw from it, and indeed would be likely to draw from it, a conclusion that particular directors had engaged in a cover up. That is a course of action which would be in breach of their directors' duties and it seems to me that likewise the statement is defamatory for that reason. I stress that there has been no occasion for me to decide whether these defamatory imputations are, or are not, soundly based." (para 23)

The judge made the order sought and declared the material inappropriate for distribution. The member argued it was in the public interest for the material to be published. It was further put to the court that whenever a person accepts a job as a director that person: "Must accept with it the prospect that there might be a measure of criticism. [The member] submitted that suspicion has been aroused by the conduct of the directors themselves, and that his statement was merely a statement which pointed out the matters which caused such suspicion to be raised. He invoked the desirability of free speech" (para 24). Campbell J noted that if there were no statutory provisions governing the situation the members might well have been correct in their view. However, he was not prepared to say whether those arguments might prevail. Section 249P of the Corporations Act had vested in the court the important power to "censor" or omit information that might be defamatory. In all of the circumstances he was prepared to make the order.

The member asked the court not to award costs against him on the basis that the issues could have been addressed in a slightly different way to the way in which the NRMA had sought to deal with it. The judge rejected this argument and in all of the circumstances he ordered that the member pay the costs of litigation. Irrespective of whether costs were awarded in favour of the company or not, the time and other costs involved in this type of litigation must be extremely debilitating. One can only hope that the difficulties facing that organisation will soon be brought to a happy and satisfactory resolution.

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