BACKGROUND FACTS

Internet Technology Solutions Pty Ltd (ITS) is a company that has developed a disruptive and innovative browser for the deep web called 'ArkaneNet'. Carly is a genius coder, Dan is a brilliant ex-banker, Ella is a talented public relations and human resources manager, and Frank is a wealthy investor. Carly, Dan, Ella and Frank are ITS' directors and only equal shareholders.

As they registered ITS with the Australian Securities and Investments Commission (ASIC), they adopted a constitution that mirrors most of the replaceable rules in the Corporations Act 2001 (Cth). The constitution only excludes those replaceable rules that conflict with it. For instance, ITS' constitution establishes that while the board of directors is to manage the company's business, the general meeting of members has exclusive powers to approve contracts above the $100,000 threshold. ITS' constitution also requires a special resolution to approve dealings affecting, changing or modifying the objects clause and the company's business.

They all agree that Dan will be the Chief Executive Officer (CEO) effective immediately and prepare everything necessary for the notification to ASIC on the same day. They pass a board of directors' resolution and record it in the minute book. In the meantime, they approve new business cards for everyone indicating their roles in ITS.

The business opportunity

Gwen is a former University colleague of Dan, and she is looking for a platform to run her digital currency GwenCoin. She learnt that Dan is having second thoughts about ArkaneNet since they have detected criminal operations and, while the platform is absolutely legal, ITS has become the new focus of interest for the Federal Police. She also knows that Dan is keen on investing in green technology and electric car batteries to rebuild his reputation.

Dan runs into Gwen in a tech conference and tells her that he was recently appointed ITS' CEO. Dan shows Gwen his business card with the title CEO next to his name. He says he feels very powerful despite being limited to negotiating contracts below $100,000; after all, he needs general members' approval above that limit. Gwen offers Dan a solution to his reputation problems and says she can arrange all the paperwork to buy ArkaneNet for $1,000,000. He says this is the answer he has been looking for, and now he can invest in the profitable green energy industry if you send me all the paperwork as soon as possible, you can have the contract signed off by the end of the week.

Meeting irregularities

This afternoon, Dan sends an email calling for a general members' meeting the next day at 9:00 AM at the company offices. The purpose of the meeting is to sell ArkaneNet to Gwen and invest the proceedings in an initial public offering (IPO) of a Lithium-Ion battery developer for Taesler Electric Vehicles. While Ella sees a great opportunity to steer clear of deep web risks, Carly and Frank feel this entails selling the company business everything they have fought for; they need more time to think. Carly and Frank say they are not available for the meeting; they are too busy fixing new ArkaneNet's security issues. They ask Dan to reschedule the meeting for later this week.

The next day, ignoring Carly and Frank's request, Dan meets with Ella at 9:00 AM and asks her to take the minute of the meeting. He moves that ArkaneNet is sold to Gwen, and both vote in favour. Dan records the resolution in the members meeting's book, including that he and Ella are authorised to sign the contract in their capacity as directors of ITS. Later that day, he signs Gwen's contract and writes down Ella's name himself in her company director's capacity.

Contracting with outsiders

Dan meets with Gwen later and hands over the contract to her signed by Ella and himself. Gwen says he is the most efficient CEO she has ever heard of in history how did you manage to call a meeting and sign the paperwork so quick? Promise me that you did not cut any corners here. He says he is the best CEO in the world, and everything has been dealt with by the book.

Carly and Frank call for a board of director's meeting and make it clear that Dan has made a big mistake. They approve a board's resolution three to one rejecting the contract selling ArkaneNet. They think that the members' general meeting was invalid after all. Dan is ashamed of his behaviour and Ella is angry at him; she realises that she should have never trusted him now that he has forged her signature in the contract.

Playing safe

Gwen gets wind of the recent miscommunication problems in ITS' headquarters, but it is too late. She has already commenced the integration between ArkaneNet and GwenCoin, which involves a major fundraising operation, committing financial resources, retaining staff and hiring massive data storage services. Gwen prepares a legal strategy to hold ITS to the contract since so much money is at stake.

Is Gwen likely to succeed in her attempt to keep ITS bound by the contract? Are there any irregularities internal to ITS affecting the contract validity? What assumptions can Gwen rely on from common law? What assumptions can Gwen rely on from statute law?

THE QUESTION

Dan comes to see you for advice. Advise Dan regarding the likelihood that a court would require ITS Pty Ltd to honour the contract with Gwen.