Thursday 4 December 2008

Australia: adopting a broad interpretation of a term in the articles of association

In Dome Resources NL v Silver [2008] NSWCA 322, the New South Wales Court of Appeal considered the approach to take when interpreting a provision in a company's articles of association which provided the company's directors with the power to award benefits to the company's present and future non-executive directors. A unanimous court (Beazley, Basten and Bell JJA) observed:

[11] Although a company’s constitution has effect as a contract between the company and its officers and members, and between the members (Corporations Act, s 140), it is self-evidently a document having features which distinguish it from a commercial agreement between identified parties. Nevertheless, the approach to construing the clauses of a constitution is closely analogous to that adopted in relation to commercial contracts: see Austin RP and Ramsay IM, Ford’s Principles of Corporations Law (13th ed 2007) at [6.080]. Accordingly, it is appropriate to approach the task so as to give the document a “businesslike interpretation”, paying “attention to the language used by the parties, the commercial circumstances which the document addresses, and the objects which it is intended to secure”: see McCann v Switzerland Insurance Australia Ltd [2000] HCA 65; 203 CLR 579 at [22] (Gleeson CJ), language adopted in Wilkie v Gordian Runoff Ltd [2005] HCA 17; 221 CLR 522 at [15] (Gleeson CJ, McHugh, Gummow and Kirby JJ, Callinan J agreeing at [53]). Even where a company’s constitution adopts the language of the Corporations Law (or now the Corporations Act) the importance of construing the language in its new contractual context requires a broader set of considerations to be addressed, not excluding, but not limited to, the statutory context: see Bluebottle UK Ltd v Deputy Commissioner of Taxation [2007] HCA 54; 232 CLR 598 at [31]; and see Deputy Commissioner of Taxation v Bluebottle UK Ltd [2006] NSWCA 360; 68 NSWLR 558 at [107]-[108].

[12] Applied in the present context, and subject to constraints imposed by the statutory regime, those principles require that a provision conferring power on the directors should be given as broad an operation as is reasonably available on the language and without imposing procedural constraints on the board, absent some contextual indication or purpose requiring the language to be so construed"

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