At this time of the year companies receive members’ resolutions for discussion at the AGM. Must they all be put?

In Australasian Centre for Corporate Responsibility v Commonwealth Bank of Australia [2015] FCA 785 the Federal Court of Australia decided that two resolutions proposed by members of the CBA pursuant to section 249N of the Corporations Act 2001 were not resolutions that could validly be moved at an annual general meeting of CBA.

UPDATE July 2016: Full Court appeal by ACCR rejected

A third resolution was put to the CBA AGM and rejected.

ACCR also sought a declaration that it gave proper notice of the first and second proposed resolutions under s 249N of the Act, an injunction that CBA “ensure” that the first and second proposed resolutions be considered or moved at its next AGM, and a declaration that the board and/or management of CBA acted outside its powers in:
(a) publicly commenting on the third proposed resolution;
(b) publicly offering an opinion with respect to the third proposed resolution;
(c) publicly making arguments or offering reasons with respect to its members’ decision whether or not to vote for the third proposed resolution; and/or
(d) publicly recommending that members vote against the third proposed resolution.

By letter dated 4 September 2014, ACCR, which represents over 100 members of CBA entitled to vote at general meeting, gave CBA notice pursuant to s 249N of the Act of the proposed resolutions to move at CBA’s next AGM on 12 November 2014. The letter stated that the first proposed resolution was ACCR’s “preferred option” but “in the event that for whatever reason” the first proposed resolution was not included in the final notice of the meeting, CBA was requested “by way of alternative” to include the second proposed resolution. The letter further advised that “in the event that for whatever reason” neither the first or second proposed resolutions were included in the final notice of meeting, CBA was requested to include the following special resolution “by way of alternative”:

Third proposed resolution:
Special Resolution to amend the constitution:
That, each year at about the time of the release of the Annual Report, at reasonable cost and omitting any proprietary information, the Directors Report to shareholders their assessment of the quantum of greenhouse gas emissions we are responsible for financing calculated, for example in accordance with Greenhouse Gas (GHG) Protocol guidance.

On 2 October 2014, CBA released its notice of meeting for the 2014 Annual AGM to the ASX. The notice contained the third proposed resolution, the members’ statement in support of that resolution and an explanatory memorandum which contained statements by the Board of CBA: (1) that it did not consider the third proposed resolution to be in the best interests of CBA; (2) referring to existing initiatives and reporting by the CBA in respect of alternative energy sources and sustainable energy practices; (3) that it was not clear how the Directors would, as a practical matter, be in a position to comply with the third proposed resolution; and (4) recommending that members vote against the third proposed resolution. The notice did not contain any reference to the first or second proposed resolutions. At CBA’s 2014 AGM only the third proposed resolution was put to a vote of the members.

CBA argued that the shareholders do not have any power vested in them by the company’s constitution or the Act to move advisory resolutions concerning the way in which directors should exercise their management powers. It was further submitted that both proposed resolutions are concerned with the business of CBA and that the shareholders in general meeting cannot interfere with the exercise of the powers of management entrusted to the board by cl 12.1(a) of CBA’s constitution.

Judge Davies upheld the decision in National Roads & Motorists’ Association v Parker and decided that it applied settled principle to hold that members cannot use their statutory power to move a resolution expressing an opinion as to how a power vested in the board by the constitution should be exercised by the board.

Justice Davies decided:

“In the present case therefore, if the first and second proposed resolutions are not referrable to any power other than to the power of management vested exclusively in the CBA board, it follows, in my view, that the CBA board is not required to put those resolutions to the AGM. This is notwithstanding the mandatory terms of s 249O of the Act….

In case I am wrong in my conclusion that the board is not required to place either the first or second proposed resolution on the agenda for the AGM, I will also deal with the question of notice under s 249N. Assuming that either or both of the first or second proposed resolution can validly be put, I would not, in any event, have declared that ACCR gave proper notice of those resolutions such as to require those resolutions to be moved at the AGM. The letter plainly put forward each of the proposed resolutions, including the third resolution, as alternatives. The letter expressly stated that if “for whatever reason” the first resolution was not included in the notice of meeting, the second resolution was to be included and, likewise, that if “for whatever reason” the first and second resolutions were not included, the third resolution was to be included. In the circumstances, it was open to CBA to include only the third on the basis of its view (rightly or wrongly) that the first and second proposed resolutions could not be validly put. ….

The final issue is whether the directors acted in excess of their powers in regards to the statements which they made in the explanatory text of the notice of general meeting.

The explanatory memorandum accompanying the notice addressed each of the listed resolutions and contained statements expressing the board’s views regarding the third proposed resolution. Those statements expressed that the third proposed resolution was not endorsed by the board, recommended that members vote against that resolution and gave notice that the chairman intended to vote available proxies against the resolution.

I accept CBA’s submissions that the power of the directors to make such statements is derived from cls 9.4 and 12.1(a) of the constitution and the duty to inform the shareholders.”