Falkingham v Peninsula Kingswood Country Golf Club [2015] VSCA 16 (Supreme Court of
Victoria, Court of Appeal, Warren CJ, Whelan, Beach JJA, 16 February 2015)
This case concerned oppression proceedings under section 232 of the Corporations Act 2001 (Cth)
(the Act). The Kingswood Golf Club Ltd (Kingswood), a company limited by guarantee, was located at
Dingley in Victoria. The club had an 18 hole golf course on land that it had owned since the 1930s. In
2013, its land was valued at approximately $52 million, and if re-zoned residential, would be worth
$71 million. As at 30 June 2013, Kingswood had approximately 900 members. The Peninsula Country
Golf Club (Peninsula), an incorporated association, was located at Frankston. It had two 18 hole
courses. In 2013, its land was valued at approximately $54 million, and if re-zoned residential,
approximately $72 million. In 2013, Peninsula had about 1705 members. Both clubs were facing
future financial difficulties because of falling membership and other factors.
At a general meeting of Kingswood held on 17 September 2013, the members voted by ordinary
resolution to proceed with a merger with Peninsula, by a margin of 63% in favour and 27% against.
The merger was achieved by the members of Peninsula becoming members of Kingswood. The
plaintiff at first instance (now the appellant), Mr Falkingham, strongly opposed the merger. His
application relied on alleged oppression by the Peninsula Kingswood Country Golf Club Ltd of the
appellant and, by inference, other members who opposed the merger. The alleged oppression
consisted in admitting to membership of Kingswood the members of Peninsula. Admission of
members was dealt with in clause 8 of the constitution of Kingswood.
His Honour agreed with the plaintiff that the admission of the Peninsula members was not permissible
under clause 8 of the Constitution. His Honour said that the purpose of giving the board power to
admit new members could only be exercised for the purpose for which it was given. There were two
possible purposes for the admission of the Peninsula members: to add to the membership for the
benefit of the club and the existing members, and to give effect to the merger of Kingswood with
Peninsula. His Honour said that the operative question was which was the substantial purpose? The
High Court in Whitehouse v Carlton Hotels Ltd [1987] HCA 11 said (at [93]–[94]) that the relevant
question to be asked is whether, but for the purpose’s existence, the power would have been
exercised.
It was held that there should have been a special resolution requiring a majority of 75% to effect the
merger with Kingswood, rather than the ordinary resolution (at [95]–[96]). This was so even though
the members of Kingswood had voted by majority (63%) for the merger. Section 232 of the Act
requires the action complained of be unfair to the member complaining, as a member. His Honour
found that this was so (at [98]). Thus, the actions of the board were voidable because of oppression,
though not void.
The defendant club pleaded laches, acquiescence and delay. This is a defence which requires that a
defendant can successfully resist an equitable (although not a legal) claim made against him if he can
demonstrate that the plaintiff, by delaying the institution of prosecution of his case, has either: (a),
acquiesced in the defendant’s conduct; or (b) caused the defendant to alter his position in reasonable
reliance and the plaintiff's acceptance of the status quo, or otherwise permitted a situation to arise
which it would be unjust to disturb. The admission of new members from Peninsula took place in
October 2013. The plaintiff did not retain solicitors until March 2014, and did not institute proceedings
until August 2014. The board was due to make its decision as the successful bidder for the Dingley
land on 24 August 2014. Although there had not, objectively, been a long delay on the part of the
plaintiff, the potential for damage to the defendant club, and the potential buyers of the land was
substantial (at [111] of the decision at first instance). Therefore, although oppression was held to
exist, no remedy was forthcoming because of the delay of the plaintiff in bringing his action, and the
consequent potential for damage to be suffered by the defendant and third parties. The plaintiff’s
application was dismissed.
On appeal, both parties to the appeal accepted that the trial judge’s decision on laches, acquiescence
and delay was a discretionary judgment. The court dismissed the appeal, holding that the appellant
had failed to establish error of the kind necessary to overturn the judgment. However, although the
court of appeal held that this conclusion was sufficient to determine the appeal, it also concluded that
the trial judge was correct in finding that the board had exercised its power to admit new members for
a purpose other than that for which that power had been conferred by the Constitution (at [104]–[106]
per Whelan JA who delivered the judgement for the court):
I agree with the trial judge that the Constitution did not envisage or provide for the steps which
were intended to be taken in order to effectuate the merger as described in the information
pack and which were the subject of the ordinary resolution passed by the members on 17
September 2013. It seems to me that the idea that the directors could use the specific power
to admit members nominated under clause 8 for the purpose of admitting en masse the entire
membership of a different club with a view to then selling the existing golf course, adopting a
new Constitution (which did not require member approval for sale of the golf course), and
changing the club’s name, only has to be stated to be rejected. The proposal may well have
been a prudent and sound one, as I am sure the directors considered that it was. The fact that
the merger may well have been an excellent idea is not relevant to the question of whether
the directors had power to implement it in the way in which they did. The resolution of 17
September 2013 was itself valid but, as the trial judge said, it did not authorise the directors to
take any step which they did not have power to take under the Constitution. The absence of
any element of self-interest in directors does not make the admission of the Peninsula
members valid.
Despite this, the overall appeal was dismissed on the basis of the correctness of the trial judge’s
finding on the issue of delay.
This appeal decision may be viewed at: http://www.austlii.edu.au/au/cases/vic/VSCA/2015/16.html
The case at first instance may be viewed at:
http://www.austlii.edu.au/au/cases/vic/VSC/2014/437.html