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While the case of Lawrence v Melbourne Football Club Ltd [2024] FCA 945 was dismissed, it serves as a reminder to associations of the importance of maintaining transparency and fairness in their governance processes. Associations need to carefully consider how their rules and procedures might impact members' rights and the overall integrity of their governance processes. This case highlights that even well-intentioned rules can be scrutinized if they are perceived as oppressively restricting member rights, emphasising the delicate balance required in managing the affairs of membership organisations.

Background:

In the case of Lawrence v Melbourne Football Club Ltd [2024] FCA 945, Mr. Lawrence, took legal action against the Melbourne Football Club (MFC). MFC is a company limited by guarantee with over 70,000 members.

Mr Lawrence was concerned that provisions in the Election Rules at MFC were unfair and oppressive, particularly to members like himself who were not aligned with the current Board. Hence, Mr. Lawrence sought a court declaration under sections 232 and 233 of the Corporations Act 2001 (Cth) (the Act) that the club's conduct was against the interests of its members and oppressive and sought orders that the club’s election rules to be changed to address the alleged oppressive conduct.

Section 232 provides the Court power to make an order in relation to the company’s affairs, an act, omission, or member resolution, if it is either contrary to the interests of the members as a whole; or oppressive to, unfairly prejudicial to, or unfairly discriminatory against, a member or members. Section 233 permits the Court to make various orders for a breach of section 232, as it considers appropriate, in relation to the company.

Mr. Lawrence’s complaints focused on several issues in relation to Board conduct including:

The practice of fulfilling casual vacancies before shortly before an election where those appointed then nominate for the upcoming election,
Failing to properly notify all members when nominations for board elections were open,
Board endorsement of the existing directors running for election,
Prohibition on "electioneering”,
Prohibition of members obtaining or using the register of members for the purpose of campaigning, and
Lack of independence in the Candidate Review Committee.
During the trial, some of Mr. Lawrence’s complaints were resolved as the MFC adopted many of the changes to the Election Rules contended by Mr Lawrence. The remaining unresolved issues were regarding the electioneering rules. The Court considered whether these rules were oppressive conduct under section 232.

In its judgement, the Court used existing case law to establish that for section 232 to apply, the Court must assess whether no reasonable board could have made the same decision. The Court noted their role is not to replace directors’ decisions and that they will not intervene in board decisions unless those decisions are shown to be oppressive or unreasonable.

The judge found that the MFC’s election rules were reasonable and made in good faith. The Court agreed that the Board’s actions were aimed at ensuring fairness in the elections, preventing any one candidate from having an unfair advantage, and protecting the Club’s reputation. While Mr. Lawrence may not agree with the Board’s decision and may believe there are better rules that could be imposed in relation to the elections, the Court noted it wasn’t their role to comment on those decisions unless they were clearly unreasonable or oppressive, which was not the case here.

Hence, the Court ultimately dismissed Mr. Lawrence’s case.

Key Takeaways:

This decision highlights the Court's cautious approach to intervening in corporate governance matters, reaffirming the principle that boards have broad discretion in managing a company’s affairs, provided they act in good faith and with reasonable judgment.

Of note is that the MFC Board minutes clearly recorded the Board’s reasons for including the electioneering restrictions in the rules which helped demonstrate that the Board was acting reasonably and in good faith.

The MFC constitution empowered the Board make ‘Rules’ as it sees fit for the proper conduct and management of the MFC and it was under this power that the Board was authorised to make and amend the Election Rules. We recommend that prescriptive election processes should not be in the constitution as this means less flexibility to make changes as required as constitutional change requires a special resolution of the members at a general meeting. The Board should have the power to make by-laws and prescribe the election process in such by-laws.

For members, this ruling serves as a reminder that while their concerns may be valid, the courts will not lightly overturn board decisions that are made in the interests of the organisation as a whole.

Boards should take this judgement as a reminder to listen to dissenting members and address any concerns that arise with the membership as a whole.

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