The Supreme Court decision of Anglo Australian Resources N.L. v Bloom Financial Advice Pty Ltd [No 2]  WASC 480 highlights the importance of boards complying with their obligations with respect to meeting procedure and directors ensuring that they are acting with requisite authority when instructing solicitors to commence legal proceedings on behalf of a company.
In this case, her Honour Justice Hill ordered that the proceedings to be stayed on the basis that Anglo Australian Resources N.L.’s (Anglo Australian Resources) solicitors had not been properly authorised to commence legal proceedings on its behalf given that:
Application for the removal of the stay
Anglo Australian Resources later applied to lift the stay of proceedings. It made that application on the basis that a further directors’ meeting had been held at which its directors had resolved to appoint two directors (Mr Barclay and Mr Hardisty) and that Mr Barclay and Mr Hardisty (with a Mr Varcoe abstaining) had resolved to authorise the commencement of the proceedings.
Further meeting to ratify proceedings
At the further directors’ meeting each of the directors of Anglo Australian Resources were present, being Mr Jones, Mr Varcoe, Mr Smith and Mr Stern.
Validity of appointment of new directors
The defendants asserted that the appointments of Mr Barclay and Mr Hardisty were invalid as Mr Jones and Mr Smith had a material personal interest in the resolution to appointment them as directors. They further claimed that the resolution was passed with the ‘interconnected purpose of ratifying an earlier decision to commence proceedings to prevent their removal as directors’.
Anglo Australian Resources denied that the directors had any such material personal interest in the appointment of the new directors and said further that:
In considering this issue, her Honour referred to the decision of Claremont Petroleum NL v Cummings2 (Claremont Petroleum) in which Wilcox J considered the limits of a case referred to by Lawrence J in Re North Eastern Insurance Co Ltd3 (Re North Eastern).
Wilcox J said further that while it is important to uphold the principle that what cannot be done directly cannot be done indirectly, it is undesirable to apply that principle so as to invalidate resolutions in which no director has a financial interest.
She did not consider that the resolution for the appointment of Mr Barclay and Mr Hardisty was rendered invalid because it would facilitate the adoption of a resolution in which Mr Jones and Mr Smith had a material personal interest.
Decision to ratify the commencement of proceedings and appointment of solicitors
The defendants contended that the resolution of the board of directors to ratify the commencement of proceedings and appointment of solicitors was ineffective as there was no decision to be ratified as the first directors’ meeting was inquorate.
Her Honour also referred to Massey (trading as Massey Bailey, Solicitors & Consultants) v Wales5, in which the NSW Court of Appeal considered whether a general meeting of shareholders could authorise the commencement of legal proceedings which had already been commenced (which it could not in that case, the relevant power was vested in the directors). Relevantly, in that decision Hodgson JA (with whom Meagher JA and Beasley JA agreed) held that:
Her Honour also referred to the comments made by Finkelstein J when considering this issue in Ox Operations Pty Ltd v Land Mark Property Developments (Vic) Pty Ltd (in liq).6 In that decision, Finkelstein J stated that it is well established that it is possible for a company to ratify the unauthorised act of a solicitor bringing an action in its name without its actual or implied authority. He said further that because such ratification is possible, a practice has developed that when an action is brought without authority it will not be stayed or dismissed forthwith, but the company will be permitted to convene a general meeting or a meeting of its directors to consider whether to adopt the action.
On the basis of her Honour’s reasons, she ordered that the stay be lifted.
This case is a reminder that when a company seeks to retain solicitors to commence proceedings on its behalf, the company must ensure that it has properly retained and authorised the solicitors to do so. It is also a reminder of the serious consequences that can follow where proper meeting procedure is not complied with, or where directors fail to appreciate that they have an obligation not to vote on resolutions in which they have a material personal interest.
By reason of the operation of s 195(1) of the Corporations Act 2001 (Cth)
Claremont Petroleum NL v Cummings (1992) 110 ALR 239; (1992) 9 ACSR 1, 262
Re North Eastern Insurance Co Ltd  1 Ch 198
Citing Clamp v Fairway Investments Pty Ltd (1971-1973) CLC 40-077; McCarthy v Wheeler and Wongan Hotels Pty Ltd  VSC 67 
Massey (trading as Massey Bailey, Solicitors & Consultants) v Wales  NSWCA; (2003) 57 NSWLR 218
Ox Operations Pty Ltd v Land Mark Property Developments (Vic) Ptd Ltd (in liq)  FCA 1221