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Tulo v Federation of Savings and Loan Societies [1988] PGNC 8; N711 (27 October 1988)

Unreported National Court Decisions

N711

PAPUA NEW GUINEA

[NATIONAL COURT OF JUSTICE]

O.S. 42 OF 1988
PHILEMON RAVI TULO
PLAINTIFF
AND
BOARD OF DIRECTORS OF FEDERATION OF SAVINGS AND LOANS SOCIETIES LTD.
DEFENDANT

Waigani

Bredmeyer J
11-13 October 1988
21 October 1988
27 October 1988

JUDICIAL REVIEW - declarations - contract of employment - amendment to the Rules of a society - whether Rules complied with.

Counsel:

L. Gavara-Nanu, for the plaintiff

S. Kemaken, for the defendant.

Cur. adv. vult.

27 October 1988

BREDMEYER J: This is an application for judicial review of two decisions: the first was that taken at a Special General Meeting of the Federation of Savings and Loans Societies (hereinafter the called “the Federation”) on 23 May 1987 whereby the constitution of the Federation was changed and a new Board of Directors elected. The second was a decision made by the Board of Directors to appoint Tom Kekeao Managing Director of the Federation. I find it convenient to deal with the second matter in time, first.

THE APPOINTMENT OF TOM KEKEAO AS MANAGING DIRECTOR.

Mr. Kekeao was appointed as Managing Director of the Federation in March 1988. A contract was prepared for Mr. Kekeao to sign but he has not signed it yet pending the outcome of this case. The plaintiff, Mr. Tulo, seeks declarations that he is the Managing Director and that Mr. Kekeao’s appointment is invalid. The facts are not really in dispute in this case; the dispute is over the legal consequences.

Mr. Tulo was appointed the Managing Director of the Federation for a three-year term from 1 June 1984 to 1 June 1987. His terms of employment are contained in a three page letter from the Chairman of the Federation dated 19 December 1984. The contract contains no term about an extension. Mr. Tulo was willing to offer himself for re-appointment and at a meeting of the Executive Committee of the Federation dated 9 March 1987 a motion was passed:

“That the Managing Director Mr. P. Tulo’s service be retained for another three years.”

The minutes state that the reason was to maintain stability within the Federation and then this sentence is recorded:

“Condition: A contract for the Managing Director is to be drawn up by Mr. Unagi and his team”.

No contract was ever drawn up because on 23 May 1987 the old Board of Directors was replaced at a Special General Meeting which I discuss at length later, and the new Board and the new chairman were not keen on his re-appointment. Mr. Tulo stayed on as Managing Director without a contract. The Chairman advertised the position, the Board decided to offer the position to someone else, and in March 1988 Tom Kekeao took up duties at the new Managing Director. There was a hand over-take over period in March and Mr. Tulo was paid to the end of March 1988. On 11th March he commenced this action. He was given leave to apply for judicial review and the Federation consented to an interim injunction whereby he has been paid full salary, and all other entitlements (house and car etc.), pending the outcome of this case.

Counsel for the plaintiff has argued that the plaintiff has a binding contract of employment until 1 June 1990. Note that the motion to re-appoint him for three years, which I have quoted, was made by the Executive Committee of the Federation not by the Board of Directors. Under Rule 15(i) of the Rules of the Federation, only the Board can appoint employees or servants of the Federation, and how appropriate and right it is that only the Board should appoint the Managing Director, the most important servant of the Federation. The plaintiff has not been able to show me any rule or resolution legally delegating this power to the Executive Committee. The Executive Committee’s resolution of 9th March is no more then a recommendation to the Board for Mr. Tulo’s re-appointment.

Moreover the motion imposed a “condition” that Mr. Unagi and his team draw up a contract for the position. Mr. Unagi was a director of the Federation. Clearly the meeting proposed that Mr. Unagi and his committee draw up a contract, to be discussed by both sides and, if acceptable to both sides, it would be signed. If the terms were not acceptable to either side, then no contract would be signed. The motion of 9th March, even if made by the Board, was no more then an expression of a willingness to offer Mr. Tulo a three-year contract provided that agreement was reached on the detailed terms.

For these reasons I consider that the meeting of 9th March did not create a binding contract, his old contract expired on 1st June, and he thereafter stayed on in a temporary or non-contract, capacity. He has thus not lost any right and is not entitled to the declaration sought that he is still the Managing Director until June 1990.

THE SPECIAL GENERAL MEETING OF 23 MAY 1987.

This meeting was a palace revolution. It altered the composition of the Board by an amendment to the rules, it elected or appointed a new Board and elected a new Chairman and Vice Chairman of the Board. The meeting was a Special General Meeting and amended the constitution, therefore in order to be valid it has to comply with the relevant rules. Rule 12 deals with Meetings.

Rule 12(4) reads:

“The President shall decide the time and place of meetings. At the written request of four Directors the Secretary shall call special meetings. The Secretary shall give at least 21 days written notice to each Director of all meetings of the Board. Notice of any special meeting shall specify the purpose or purposes of the meetings, and any business at that meeting shall be confined to that purposes or purpose.”

Rule 12(2) says that the President and Vice-President shall be elected from its members at each annual meeting. The President is Chairman of the Board and in his absence the Vice-President takes the chair. Rule 29 deals with Amendment of the Rules. The provisions are elaborate, and cover a page of typing. I do not propose to quote them in this short judgment. Details are that two months notice of any proposed change must be forwarded to all members, voting is by ballot at a meeting (or by post). An amendment requires an absolute majority of all votes eligible to be cast and not less than two-thirds of the votes actually cast. No amendment is effective until approved by the Registrar.

Was the meeting of 23rd May called in accordance with these rules? The short answer is, Yes in some ways, No in others. A written request signed by at least four directors was served on the Acting Secretary, Mr. Paivu. He did not know what do. The permanent Secretary Mr. Tulo was away (Mr. Tulo held the position of Secretary and Managing Director). Mr. Paivu panicked and decided not to convene a meeting. Because of his failure to do his duty I consider that it was in order for some one else to call the meeting. The rule requires 21 days written notice to each Director. Was this done? An undated memo (circa end of April) from the Chairman of the Savloan Savings and Loans Society (Mr. Tatireta) to the “Chairmans and Chief Executive Officer” (sic) was put before me.. It gave notice of the proposed meeting and the purpose of it - to elect a new Board of Directors and that Federation Board members are to be composed of Chairmen of affiliated societies. I have not heard evidence from Mr. Tatireta so I do not know to whom it was sent. From internal evidence it may have been sent to all Port Moresby Chairmen and to the B.C.L. Savings and Loans Society’s Chairman. Mr. Tulo was a director yet it appears no notice was sent to him. He was then on leave in the North Solomons Province. Mr. Kulunga a director and the President of the Federation, then living in Chimbu, did not get a written notice. Mr. Meli a director of the Gazelle Society, Mr. Ketamo a director of the Eastern Highlands Society, and Mr. Kendip, a director of the Morobe Society, all said that they did not know of the meeting (see Minutes of 26 June 1987).

The Chairmen of most or all of the Port Moresby societies knew what was going to happen at the meeting because Mr. Tatireta, who principally organized the meeting, met with them twice on 11th April and 15th May to explain the strategy. (He had also written to them on 25th and 30th March in letters which were not produced to me.) At these meetings he explained the need for a new board and why in his view the Chairman Toani Kulunga was not eligible to hold any position on the Board let alone to be Chairman. Mr. Tatireta is a lawyer and no doubt that added great weight to his views.

It is worthwhile to deal with that point here at the risk of digressing from my main theme. Mr. Kulunga was elected President at the 1985 annual meeting and his term was extended at the 1986 annual meeting for another 12 months. In December 1985 he transferred to Chimbu. Whether he remained on the Board of the Police Savings and Loans Society I do not know, but once elected to the Federation Board under rule 14 he only ceases to hold office in one of six listed circumstances - and ceasing to be a director of the affiliated Savings and Loans Society is not one of them. On his evidence, which I accept, he remained a financial member of the Police Savings and Loans Society. I consider that as at May 1987 he was still President and Chairman of the Federation.

In case I am wrong on my view that written notice to each member means just that - and according to Mr. Kulunga that was the way notice was given to Directors for ordinary and annual meetings - let me examine the notice by advertisement which was given.

The advertisement reads as follows:

NOTICE OF A SPECIAL GENEEET MEETING

It was published in the Post Courier of 24th and 28th April, the first publication being more than 21 days before the meeting scheduled for the 16th May. That meeting was commenced but collapsed for lack of a quorum and was postponed to 23rd May and notice of that postponement was given in the Post Courier of 21st May.

Rule 12(4) requires the notice of meeting to specify the purpose or purposes of the meeting. The advertisement says:

The purposes of the meeting are as follows:

(1) &##160; To amen amend Rule 0(1)hef the Rules.

(2) ;ټ Electioection of n of new Board of Directors, and

(3) That Federatiard ms areosed of chns (sic) of affiliated societocieties.

Rule 10(1) reads:

̶“The0;The Board of Directors shall consist of

(60;&##160;;&#16e Director represenresenting ting each each SocieSociety thty that is a member of the Federation,

(b) & Not more than two Directorectors shall be appointed to represent any one society.”

So reading the advertisement wile 10I undnd thice to convey a two-fold purpose for the meeting:-

(a)p>(a)&#160  &##16;& to replace Rule 10(e 10(1) by a new rule providing that the Board shall comprise of the Chairmen of each affiliated Society, and,

(b) &##160;; to a nerd oa Dire Directors.

PresuPresumablymably if ( if (a) was passed, there would hardly be an election as each chairman wou ex-oo a member of the Federation Board. In May 1987 there were 20 affiliated societieieties. Rus. Rule 12(5) provides that a majority of Directors constitute a quorum at all Board meetings.

The amendments passed at the meeting of 23rd May are found in items 8 and 10 which read as follows:

“Item 8.

Amendment of Rule 10.

Leo Morgan moved that rather than restricting membership on the Federation Board to just 10 as proposed by the amendment, the quorum of the Board should consist of 10 members comprised of one representative each from Rabaul, North Solomons, Morobe, Highlands and six from the National Capital and Southern region, seconded by Gabriel Tuka - carried.

Item 10.

Chairman (sic) of Societies to be Federation Board Members.

The Chairman explained why it has been considered a must that Societies Chairman be on the Federation Board by saying that past experience has shown that if Directors other than Society Chairmans (sic) are on the Federation Board, information at the Federation level does not appear to be reaching the Societies

Gabriel Tuka moved that the Chairman (sic) of Societies or his delegate be members of the Federation Board, seconded by Leo Morgan - carried.”

These were the amendments that were passed. I consider that the amendment to the quorum rule - to Rule 12(5) - was not notified in the advertisement and is therefore illegal. Likewise the addition of the phrase “or his delegate” to the word Chairman is also a matter not notified in the advertisement, and is hence illegal.

Rule 12(4) says that a special meeting shall be confined to the notified purposes for which it is called. This meeting went further than that in three ways; it altered the quorum for meetings Rule 12(5); it said the Board was to comprise of the Chairman (or his delegate) of each Society; and it invalidated the Executive Committee of the Federation. The latter was a committee, not provided for in the Rules, which had been elected at the last annual meeting. I consider that committee could have been abolished by resolution at an ordinary, special or general meeting of the Federation, but, if it was to be abolished at a special meeting, then by Rule 12(4) notice of that proposal had to be given in writing to each Director. This was not done.

I now turn to Rule 29 which sets out how the Rules can be amended. It requires two months written notice of the proposed changes to be given to all members. This was not done. Voting is to be by ballot. This was not done. The vote has to be by a special majority. The actual majority was not recorded in this case. The Registrar is to be in charge of the ballot. The amendment is not effective until approved by the Registrar. There is no doubt that this rule was totally overlooked.

For these reasons I consider the meeting of 23 May 1987 was ineffective to amend the constitution in the ways that it purported to do, and it follows that the election of the new Board including the new Chairman and Vice-Chairman under the new constitutional provision were invalid. Although the respondent has not raised the issue, I consider that Mr. Tulo has sufficient standing to ask for declarations on these matters because he was a Director when the meeting was held on 23 May 1987 and he was still a Director, although on a non-contract basis, when he began this case on 11 March 1988. I consider that the title of Managing Director implies - as it does in any company - that he is the manager and a director, i.e. that he votes as a director. I consider that the composition of the Board is found in Rule 10(1) and Rule 17(4). I am aware of Rule 18(2) which says that the Secretary (etc.) shall not be a director, and I know that Mr. Tulo was both Managing Director and Secretary, but I consider Rule 18(2) must be read subject to Rule 17(4). That is, normally the Secretary can not be a member of Board unless the Board appoints the Managing Director to also hold the position of Secretary.

I will hear counsel on the form of orders to give effect to this decision and on the question of costs.