By Ariane Thierry, Law Graduate
Emailing members with hyperlinks to important documents may appear to be a sure-fire way for directors and management to notify their organisation’s members of a meeting or proposal. However, a recent Federal Court decision confirmed that this may not be enough. Clarke v Australian Computer Society Incorporated  FCA 2175 highlighted – among other concerns – how a not-for-profit’s (NFP) management must ensure that each of its members receive proper notice where a special resolution is being put to a vote at a general meeting. Wigney J delivered a scathing judgment of Australian Computer Society Incorporated (ACS)’s behaviour. Although their breaches were perhaps trivial, the Court ruled that the general meeting and special resolution be invalidated. The case should be a warning for NFPs on how their actions and omissions may not satisfy their obligations.
ACS is an incorporated association under the Associations Incorporation Act 1991 (ACT). Around a quarter of its 41,000 members are voting members. On 25 October 2019, it held a general meeting where a special resolution to apply for registration as a company limited by guarantee under the Corporations Act 2001 (Cth) was put to its members. The resolution was passed by 75.1% of members, which was effectively made successful by a single vote. Prior to this, various emails were sent out to its members regarding the meeting which purported to provide notice of special resolution. Mr Clarke, the applicant, was a voting member who opposed the resolution. In November 2019, Mr Clarke began proceedings seeking interlocutory relief to restrain ACS from applying for registration as a company limited by guarantee. He challenged the validity and passing of the special resolution on five grounds. The Court found in favour of Mr Clarke on all grounds.
The Court found that ACS did not comply with its rules by correctly notifying its members of the proposed special resolution and the general meeting. Firstly, ACS did not send the notice to members that had opted out of marketing emails. This amounted to 1,196 voting members. The Court critiqued ACS on the fact that a member choosing to opt out of marketing emails did not mean they were opting out of receiving important communications. Further, ACS made no additional effort to send the notice to members who had not provided their email address, or those members where the email had ‘bounced back’. Twenty members had not provided their email address, including five voting members. While these are not necessarily large numbers, the importance of this technical error is evident in the fact that the resolution was only passed by one vote.
Secondly, ACS did not properly send the notice of the special resolution or general meeting in its emails. The documents pertaining to both were included in hyperlinks that members could click onto to open and download. The Court ruled that this resulted in the document not being ‘attached to or contained in’ to the email. Indeed, the hyperlinks were a ‘pointer to the location of a file stored elsewhere that is accessible over the internet’. They were a means that members could access the documents. Thus, the documents that were linked from the hyperlinks, including the formal notice of the general meeting, were not strictly sent to the members.
ACS’s management committee also made other critical mistakes that resulted in the ruling against them. The Court held that similar to directors, management of an incorporated association who propose to move the association in a new direction must make a full disclosure of all known material facts (including opposition to the proposal) to its members. In the notices sent to members, ACS had materially misled its members, who could have been led to believe that the changes proposed were only minor, when in fact they involved new rules and a new constitution. It was only by clicking through multiple hyperlinks that members may have understood the full extent of the proposed changes. Moreover, ACS also only provided one document that purported to present an opposing argument to the proposal. On analysing that document, it was evident that the document did not present a ‘purely objective comparison’ between the existing and proposed constitutions.
The Court also ruled that ACS’ secretary, who had supposedly been delegated the capacity to validate proxy votes, had incorrectly determined that two proxy votes were invalid. While the members had both incorrectly provided their membership numbers in the proxy vote form, the secretary could have easily remedied these clerical mistakes. Finally, the Chair of ACS at the general meeting breached his duties by stifling debate and questions from members prior to the vote. He did not act in good faith, or facilitate the necessary debate. Members are ‘entitled to hear and be heard’ and must be given fair opportunity to give their opinion and ask questions. Although the Court accepted that some of these breaches were minor and technical, they all contributed to the special resolution passing and hindered the meeting’s validity. Ultimately the general meeting and special resolution were set aside for a new general meeting.
Take Away Points for NFPs
Directors and management committees should take the Court’s ruling in this case as an indication of how notices to members may be construed. Firstly, it is vital that all members receive proper notification of meetings and any special resolutions. This includes ensuring emails have not ‘bounced back’, that emails are sent to all members who have provided their addresses, and that members who have not provided email addresses are sent hard copies. Secondly, sending members an email with a hyperlink directing members to the notice of a meeting, will not constitute proper notice. Organisations should thus tread carefully if they seek to rely on hyperlinks when sending notice to their members. Finally, this case demonstrates how organisations proposing to move in a different direction must provide all material information to their members in a clear and effective way. This includes allowing members to express their concerns and ask questions.