Chuen v Laredo Pty Ltd
[2005] WASC 58
•13 APRIL 2005
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS
CITATION: CHUEN -v- LAREDO PTY LTD & ORS [2005] WASC 58
CORAM: COMMISSIONER SIOPIS SC
HEARD: 7 FEBRUARY 2005
DELIVERED : 13 APRIL 2005
FILE NO/S: COR 222 of 2004
BETWEEN: LAU CHAK CHUEN
Plaintiff
AND
LAREDO PTY LTD (ACN 008 951 522)
First DefendantNULLAGINE INVESTMENTS PTY LTD (ACN 008 729 717)
Second DefendantESPLANADE LODGE PTY LTD
Third Defendant
Catchwords:
Application for the inspection of books - The right of a company director at common law to inspect books - Turns on own facts
Legislation:
Corporations Act, s 247A, s 290
Result:
Application dismissed
Category: B
Representation:
Counsel:
Plaintiff: Mr W S Martin QC & Mr S J Lemonis
First Defendant : Mr G H Murphy SC & Mr M S Macdonald
Second Defendant : Mr G H Murphy SC & Mr M S Macdonald
Third Defendant : Mr G H Murphy SC & Mr M S Macdonald
Solicitors:
Plaintiff: Fairweather & Lemonis
First Defendant : Macdonald Rudder
Second Defendant : Macdonald Rudder
Third Defendant : Macdonald Rudder
Case(s) referred to in judgment(s):
Acehill Investments Pty Ltd v Incitec [2002] 344
Bennetts v Board of Fire Commissioners of New South Wales (1967) 87 WN (pt 1) 307
Caveat Pty Ltd v Baillie & Ors [2002] WASC 241
Stewart v Normandy NFM Ltd [2000] SASC 344
Swansson v R A Pratt Properties Pty Ltd & Anor (2002) 42 ACSR 313
Case(s) also cited:
Barrack Mines Ltd v Grants Patch Mining Ltd [1988] 1 Qd 606
Biala Pty Ltd v Mallina Holdings Ltd [1989] WAR 371
Czerwinski v Syrena Royal Pty Ltd (2000) 18 ACLC 337
Deluge Holdings Pty Ltd v Bowlay (1991) 6 ACSR 36
Edman v Ross (1922) 22 SR (NSW) 351
Goozee v Graphic World Group Holdings Pty Ltd (2002) 42 ACSR 534
Knightswood Nominees Pty Ltd v Sherwin Pastoral Company Ltd (1989) 7 ACLC 356
Kreiwaldt v Independent Direction Ltd (1996) 14 ACLC 73
Manning v Cory (1974) CLC 40-140
South Australia v Barrett (1995) 64 SASR 73
Williams v Spautz (1992) 174 CLR 509
COMMISSIONER SIOPIS SC: This is an application made under s 247A of the Corporations Act for an order authorising the plaintiff, or persons on behalf of the plaintiff, to inspect the books and records of the defendants. There is also an application under s 290 of the Corporations Act and under the common law for the plaintiff as a director of the first defendant to inspect the books of the first defendant.
Factual background
The plaintiff is a director and shareholder of the first defendant and a former director of the second and third defendants.
It is necessary to say something about the relationship between the three defendants and the position of the plaintiff.
The first defendant has since 1981 owned all of the issued share capital of the second defendant. The second defendant has at all material times owned 99.9 per cent of the share capital of the third defendant. There is located on land situated at 18 The Esplanade, Perth, a building known as the New Esplanade Hotel. Since 1981 the third defendant has conducted the business of operating an hotel business from those premises. In 1981 Nullagine owned half of the land situated at 18 The Esplanade, Perth. The other half was owned by the Western Australian Club Inc. In 1995, however, the third defendant acquired the whole of the land by purchasing the other half interest from the Western Australian Club Inc following the resolution of a dispute which went all the way to the High Court of Australia.
The shareholding of the first plaintiff is as follows:
Mr Kim Thai Tan 1,530,000 shares 51% of the shares
Teo Family 1,169,999 shares 39% of the shares
The plaintiff 300,000 shares 10% of the shares
Mr Tiaw Seng Tan 1 share
The first defendant was incorporated on 19 January 1981. The plaintiff started his involvement in the affairs of the three defendants in 1981. The plaintiff has been a director of the first defendant since 25 February 1981. The other directors of the first defendant are Mr Richard Michel, Mr Kim Thai Tan, Mr Jin Hoo Teo, Mr Sing Ming Teo, Mr Chin Keon Teo and Mr Kim Ing Tan. The first defendant does not trade in its own right but operates as a holding company. The directors of the second and third defendants are Mr Richard Michel, Mr Kim Thai Tan and Mr Jin Hoo Teo.
The plaintiff was previously a director of the second and third defendants for the period 1 July 1981 to 25 July 1997 - a period of 16 years. The plaintiff only resigned as a director of the second and third defendants because he says he was told by two other directors and believed that in order for the second and third defendants to hold the liquor licence all directors of companies were required to be Australian citizens or permanent residents, which he was not.
At all material times some of the directors of the defendants have been resident in Western Australia. These are Mr Michel, Mr Kim Thai Tan and Mr Jin Hoo Teo. At all material times the plaintiff has been resident in Singapore or Brunei.
In 1999 the plaintiff decided to sell his shares in the first defendant.
By a facsimile dated 12 December 1999, the plaintiff requested Mr Michel, one of the resident directors, to send to him the accounts 1994 to 1998 for each of the three defendants.
On 15 December 1999 Mr Michel sent to the plaintiff in Singapore the accounts as requested.
By a letter dated 18 May 2000 addressed to Mr Tan Kim Thai, a resident director of the defendants, the plaintiff referred to the accounts for the three defendants for the years 1993 to 1999 and said that that based on the information available, the structure of the three companies is that the first defendant is the 100 per cent shareholder in the second defendant which in turn owns 99.9 per cent of the shares in the third defendant. He then goes on to say:
"After carefully examining the accounts of the three companies, I would like you to within 30 days clarify/answer the queries I have put in the seven page attachments (Appendix 1, 2 and 3).
Meanwhile, please let me know the reason as to why my directorship in the subsidiary companies was removed."
The appendix which is attached raises 13 queries in relation to the first defendant, 10 in relation to the second defendant and nine in relation to the third defendant. The queries raised covered a wide range of topics and included queries going back to 1993 about the payment of interest, salaries, tax, management fees, consultants' fees, administration fees, the reversal of an interest payment in 1997, bad debts and the fluctuations in the carrying value of subsidiaries in the accounts of the first defendant.
By a letter dated 30 May 2000 Mr Michel on behalf of the first defendant wrote responding to the queries which were raised by the plaintiff.
By a letter dated 23 June 2000 the plaintiff sent another letter addressed to Mr Tan, one of the resident directors, referring to the letter from the first defendant of 30 May 2000, wherein he said:
"After examining the contents, I appreciate if you could let me know the followings [sic]:
1.What is the purpose of setting up three separate companies: Laredo Pty Ltd, Nullagine Investments Pty Ltd and Esplanade Pty Ltd?
2.What are the main activities carried on by each of the three companies from 1993 to 1999?
4.Some additional queries/clarifications which require your response. Please refer to Appendix 1, 2 and 3.
Kindly let me know your reply within 14 days."
The appendix referred to raised further queries – many of them covering the same topics as had been raised in the letter of 30 May 2000.
By a letter dated 3 July 2000, Mr K T Tan, Chairman of the first defendant wrote to the plaintiff in the following terms:
"I am of the opinion that your request should be dealt with by the full board.
I have therefore arranged as a matter of urgently [sic] a meeting of the directors, at which you can make all the directors aware of your reasons for your request. The earliest date is Wednesday 19 July 2000 at 10.00 am to be held at 18 The Esplanade, Perth."
By a letter dated 14 July 2000, Minter Ellison, acting on behalf of the plaintiff wrote as follows:
"We act for Mr Lau.
We have seen correspondence from our client dated 20 June 2000 in which he seeks various information as to the financial affairs of Laredo Pty Ltd and its subsidiaries. In response to that letter, you have called a Board Meeting of Laredo at which our client
' ... can make all directors aware of the reasons for your request.'
With respect, our client is entitled to know the details of the financial affairs of the company of which he is a director. Indeed, it is obliged to do so by reasons of his duties as a director. Our client is not obliged to provide an explanation to his fellow directors before receiving that information …"
A board meeting of the directors of the first defendant was duly held on 19 July 2000 which was not attended by the plaintiff . The minutes record that the directors were provided with a copy of the letter from Minter Ellison and another copy and a copy of a fax to the plaintiff dated 17 July 2000 from Mr K T Tan, the Managing Director of the first defendant, advising the plaintiff of the availability of the records of the company at its registered office. The meeting unanimously resolved that "no further action was to be taken in respect of the request for further information from Mr Lau". The minutes also record that "members noted that Mr Lau sought details of his own shareholdings, loan arrangements, as to how and when he transferred his funds to the first defendant, his directorships and amounts paid as travel expenses".
A further meeting of directors of the first defendant was held on Thursday 5 October 2000. The plaintiff was present.
At that meeting of the directors Mr Michel told the plaintiff that he was allowed to bring someone along to inspect the books and accounts and financial records of the three defendants. However, the plaintiff never took advantage of the offer. The plaintiff made an application COR 259 of 2000 dated 4 October 2000 to the Supreme Court of Western Australia against the first defendant whereby he sought orders that Mr Richard Yeap of Richard Yeap Hoon & Associates, 342 Murray Street, Perth, certified practising accountant, be authorised to inspect the financial records of the first plaintiff. This application was made under s 290 of the Corporations Law. The plaintiff did not advise his fellow directors at the meeting of 5 October 2000 of this application.
On 12 January 2001, Jackson McDonald, the solicitors then acting for the first defendant wrote to Minter Ellison in respect of the plaintiff's Supreme Court application. By that letter Jackson McDonald stated:
"We are instructed again to confirm that the financial records of Laredo Pty Ltd ('the Company') are available for inspection at the registered office of the Company at any time by:
(a)your client and/or:
(b)Mr Yeap, subject to Mr Yeap first executing a deed on mutually acceptable terms undertaken to keep information disclosed during the inspection confidential other than required by law."
The letter went on to say:
"In these circumstances it would not appear necessary for your client to proceed further with the application. However, if your client wishes that formal orders be made then the Company is agreeable to orders being made on the following terms." [The letter set out the proposed orders.]
The letter also said:
"You will appreciate that as your client is not a director of either Nullagine Investments Pty Ltd ('Nullagine') or Esplanade Lodge Pty Ltd ('Esplanade') your client is not entitled to an order pursuant to s 290 of the Corporations Law in relation to those companies."
The letter then drew a distinction between the statutory definitions of "financial records" and "books" and advised that the first defendant recognised the plaintiff's common law right to inspect the books of the first defendant and asked that the plaintiff identify the books of the first defendant that he wished to inspect. However, the solicitors also advised that the plaintiff had no such common law right in respect of the second defendant and the third defendant.
Notwithstanding the terms of the letter, the plaintiff obtained on 17 January 2001 orders from the court for the inspection of the financial records of the first defendant. These were obtained as consent orders. The orders permitted inspection of the financial records of the first defendant, confidentiality provisions and an order that the first defendant not charge for the provision of photocopies of the financial records to the plaintiff or Mr Yeap.
In April 2001, Jackson McDonald was replaced as the solicitors for the first defendant by Macdonald Rudder. Correspondence ensued between Minter Ellison and Macdonald Rudder as to the inspection of documents which went beyond the definition of financial records. Macdonald Rudder raised in respect of those documents the need for an agreement to be reached as to confidentiality protection because those documents would not otherwise be covered by the confidentiality provisions referred to in the court order.
By a letter 11 April 2001, Macdonald Rudder raised the question of the purpose for which the plaintiff wished to inspect the non‑financial records of the first defendant. In this regard, the letter from Macdonald Rudder stated:
"We are instructed to advise that our client is anxious not only to comply with the letter and spirit of the recent order in COR 259 of 2000, but also to address the underlying concern of your client that caused him to seek the said order.
From your client's affidavit sworn 28 September 2000 in support of the said application, it is apparent that he wishes to ascertain the true value of his shares in our client. We are instructed that our client has not at any time in the past sought, and will not seek, to withhold any relevant information in this regard. If there is some other as yet revealed purpose then we ask you to identify that purpose immediately."
It was arranged that Mr Yeap would inspect the financial records of the first defendant on 23 April 2001.
On 18 April 2001 Macdonald Rudder wrote again to Minter Ellison stating that their client would limit Mr Yeap's inspection on 23 April 2001 to the financial records of the first defendant. The letter went on to say:
"To allow an inspection outside the scope of the court order at this time would, in our view, expose our client to the risk that it would lose the protection of the said order in relation to the non‑financial records. If our client allowed Mr Yeap to inspect non‑financial records on the basis that they were financial records and therefore covered by the terms of the said order, our client would be obliged to pay for the cost of providing copies of those documents. ... Subject to Mr Yeap (or another qualified person) and your client entering into a deed with our client on terms to be agreed, our client will allow Mr Yeap, on behalf of your client as director and member of our client, to inspect the financial records of our client's subsidiaries over the last three financial years.
The terms of the said deed would include the following:
1.Confidentiality along the lines of the consent order.
2.Your client must covenant:
(a)as to the purpose of the inspection;
(b)that the information obtained will only be used for that purpose;
(c)that he is acting in good faith in seeking the inspection.
3.Your client must pay our client's reasonable costs (including legal costs on a client/solicitor basis) of and incidental to this letter, the drawing and the execution of the deed and compliance with the deed including the costs of providing a copy of any document. At this stage we are instructed not to engage in any debate as to your client's legal rights to obtain a further order from the court. Our client wishes to do all that is reasonable to satisfy your client's demands. If your client does wish to sell his shares in our client, would it not be appropriate for him to commission a valuation of his shares in our client and then a proposal to the other members of our client based on that valuation? In this regard, we note that your client has been given all of the financial statements of our client and its subsidiaries."
Mr Yeap did not attend to inspect the financial records of the first defendant on 23 April 2001.
By letter dated 5 June 2001 Minter Ellison, on behalf of the plaintiff, responded to Macdonald Rudder's letters of 11 and 18 April 2001, as follows:
"We are instructed to not reveal the purposes of the inspection our client seeks to carry out. In our view, our client's purposes are not improper. However, our client is not obliged to reveal the purposes and at this stage, chooses not to do so."
Minter Ellison also said that their client was prepared to consent to confidentiality orders being made in relation to the other books and records which were made available for inspection. The letter also stated that there was no reason why the first defendant should not pay the costs of any photocopying, as in carrying out the inspection, the plaintiff "is discharging his duty as a director of" the first defendant.
By letter dated 7 June 2001, Macdonald Rudder replied to the letter of 5 June 2001 from Minter Ellison. The letter stated:
"We are at a loss to understand why your client would refuse to disclose the purpose behind his desire to inspect the books and records of our client and its subsidiaries. From your letter we also take it that you client is not prepared to covenant that he is acting in good faith in seeking the inspection.
In those circumstances we will advise our client that the only reasonable conclusion is that there is a sinister purpose behind the inspection, and that it should limit the inspection to its financial records."
By a facsimile dated 14 June 2001, Minter Ellison responded as follows to the letter of 7 June 2001 from Macdonald Rudder:
"We are instructed that a primary purpose of our client's inspection is that he wishes to satisfy himself that the financial records of Laredo Pty Ltd and its subsidiaries are accurate and reliable. He also wishes to ensure that they are in accordance with the Corporations Law and prevailing accounting standards.
Further, our client was led to believe that after the purchase of the property on which the New Esplanade Hotel is situated, Laredo Pty Ltd would generate healthy and admirable profits. That has not occurred. Our client wishes to ascertain the reason for that. He is also keen to ensure that Laredo Pty Ltd has not been the subject of conduct which is oppressive, unfairly prejudicial or unfairly discriminatory."
There followed further communication between the solicitors which shows that there was a disagreement between the parties as to which side was to bear the cost of the preparation of a confidentiality deed which was to be prepared in relation to the use of the information which was obtained on the inspection of the non financial records. The first defendant required the plaintiff to pay the costs and the plaintiff refused to pay the costs. As it transpired, no such deed was prepared, and the plaintiff did not make any inspection pursuant to the consent orders of the Supreme Court made on 17 January 2001 or otherwise. By the date of the hearing the plaintiff had not taken advantage of the court order to carry out an inspection of the financial records of the first defendant.
A meeting of the directors of the first defendant was held on 31 August 2001. The plaintiff attended that meeting.
The minutes of the meeting record that the secretary stated that in 1995 the "WA Club's interest had been acquired at a cost of $4.4 million for the future benefit of all shareholders". The secretary indicated that:
"No funds for the acquisition had been provided by members/shareholders, but that those funds had been provided from the following two sources:
1.accumulated trading funds $600,000
2.BankWest borrowings $3.8 million"
The secretary also stated that since the auction in October 1995 the "funds used to pay interest and reduce borrowing had all been made in the interests of all shareholders and funded out of profitable trading". He went on to say that the result of this policy adopted by the Board had increased and enhanced shareholder equity.
The minutes go on to record that:
"The Secretary indicated that he was concerned that the current impasse would incur [sic] the parties in legal costs which were unwarranted and justifiable.
The Secretary sought Mr Lau's views in order to assist and explained that while the consent order related to Laredo it had always been agreed that the financial statement of the subsidiaries which had been previously provided to Mr Lau would again be provided on the proviso that the deed to be prepared by Minter Ellison [Mr Lau's lawyers] be paid for by Mr Lau and not by the company.
Mr Lau indicated that he did not know as the matter was being handled by his lawyers and he was not prepared to pay anything.
Mr Lau stated that if his lawyers did not win, he would deal with the matter in another way.
...
The Secretary suggested he was willing to provided [sic] his assistance to Mr Lau on a one to one basis in an effort to resolve this conflict and overcome the areas of contention to avoid costly litigation between the parties. Mr Lau expressed he was happy and was not worried about the legal costs."
By a letter dated 28 September 2001 the plaintiff wrote the following letter to the first defendant:
"Re: 'If his lawyers did not win,
he would deal with the matter in another way'
I refer to the minutes of directors' meeting held on 31/08/2001 during which I did not say 'if his lawyers did not win (how did you know that my lawyers would not win ? STRANGE ?!?!?!?!) he would deal with the matter in another way' What I said was 'the matter can be settled in 2 months, one month or even tomorrow' What I actually meant was I would request the relevant authorities such as ATO, ASIC and etc to inspect the books and records of the group on my behalf, if I really want it by tomorrow since you are of the opinion that my lawyers would not win.
If I am forced, I will take such an action to protect my interest. I had made some inquiries with the relevant authorities during my recent visits to Perth."
The plaintiff in that letter also said that he had three grievances. Firstly, he had not in the last 20 years financially benefited from his involvement in the first defendant - except once when he received a travel benefit of $3000; secondly, on three occasions his contributions concerning a car park development in Bangkok had been rudely denied by another director; and thirdly, for 20 years he had not received a "single cent on return of capital from the company".
By a letter dated 12 October 2001 Mr Michel, the secretary of the first defendant responded to the three concerns which were expressed by the plaintiff in his letter of 28 September 2001. In relation to his complaint that he had not received a single cent of return on capital from the first defendant Mr Michel said:
"Item 3 - I have included a copy of a Directors' Meeting Minute which you attended dated 13/5/1991 - 10 years after the original acquisition (16/4/1981) but prior to the auction in 1995 - resolving to progressively make loan reductions. This is, as far as I am aware, still the Board's policy and it is being carried out."
A meeting of the directors of the first defendant was held on Monday 29 October 2001. The plaintiff attended that meeting. On 29 October 2001 the plaintiff sent a letter requesting some information about the accounts of the second and third defendants.
On 31 October 2001 the plaintiff addressed a facsimile to "all the shareholders of Laredo Pty Ltd". The facsimile stated:
"Re: Disposal of Shareholding in Laredo Pty Ltd
After the end of the Directors' Meeting on 29/10/2001, Mrs K T Tan asked me whether I wished to dispose of my shares. This is to confirm my offer to dispose of my 10% shares in Laredo Pty Ltd. My offer is under the following terms:
1.Offer price: AUS$1.65 million net excluding capital gains tax (GST) and other government tax, if any.
2.The loan of AUS$206,118.00 owed to me by Laredo Pty Ltd be repaid to me on the date of the transfer of the shares;
3.This offer is valid for two weeks from the date of this letter."
By a facsimile dated 8 November 2001, the shareholders of the first defendant responded to the plaintiff's offer by saying that they would give the plaintiff three months "to sell the whole property for a price not less than $22.2 million". The letter says that a sale at that price would permit him to receive the price at which he had offered to sell his shares after the payment of debt. On 12 November 2001 the plaintiff wrote to the first defendant, as follows:
"I refer to your letter of 08/11/2001.
Please be informed that if my offer to dispose of my 10% shares at a net price of AUS$1.65 million is not accepted by any of the shareholders of Laredo Pty Ltd, I will have no alternative but to adopt other legitimate avenue open [sic] available to me thereafter WITHOUT FURTHER NOTICE.
Please fax to me the results of my offer by 15 November 2001."
There is no evidence before the court as to whether there was any response to that letter.
On 20 March 2002 the plaintiff again wrote to the shareholders of the first defendant in the following terms:
"Re: Disposal of my 10% shares in Laredo Pty Ltd
I refer to the telephone conversations between Mr Alex Teo and myself on 11/02/2002 (Chinese New Year Eve) during which an offer of AUS$1.3 million net by Japanese (as claimed by Alex) was proposed to me. I was also told by Alex that he and some other shareholders also agreed to sell their shares at the same price and altogether at the same time. I therefore agreed with the proposed price of AUS$1.3 million net, excluding CGT and other taxes, if any, offered by the Japanese for my 10% shares. I would like to make a timely and viable proposal as to settle the impasses on a win‑win basis. I would like to place in [sic] records that originally, the bottom line of my offer is AUS$1.4 million net, excluding CGT and other taxes. HOWEVER, I DO NOT MIND selling my shares to anyone who is not a shareholder thus probably less intelligent in knowing the operations of the Group, as at $1.3 million net excluding CGT and any other taxes, but to the existing shareholders and their related parties, I would like to ask for AUS$1.4 million net excluding CGT and other taxes the disparity of AUS$100,000 between the prices is very insignificant and it may be considered as a token compensation resulting from rejecting my request for inspecting the books and records of the subsidiaries.
You are welcome to express your point of view on this issue."
On 22 November 2002 the plaintiff wrote to Mr and Mrs Tan, who are shareholders in the first defendant, in the following terms:
"Re: Disposal of my 10% shares in Laredo Pty Ltd
I refer to the above issue. I was told by Mr R A Michel on 16 October 2002 during the Directors' Meeting in Perth that the value of the hotel is between AUS$15 million to AUS$20 million.
In consideration of the above, I am willing to dispose of my 10% shares in Laredo Pty Ltd to you for the sum of $1.4 million with the condition that GST and capital gains tax on the sale proceeds are borne by me, I would like to know what is the fair price for both parties if you don't agree with the above AUS$1.4 million offer.
I await your reply."
Mr Tan replied to this plaintiff's fax on 26 November 2002 advising him that he and his wife were unable at the present time to consider his offer.
On 5 December 2002 the plaintiff wrote to Mr and Mrs Tan in the following terms:
"Re: Disposal of my 10% shares in Laredo Pty Ltd
I thank you for your letter of 26/11/2002 in reply to my letter of 22/11/2002 regarding the disposal of my 10% shares in Laredo Pty Ltd to you.
Under the present development, I am of the opinion that it is now the time to settle the dispute once and for all. To pave the way for a settlement, I confirm that no action will be taken by me to approach the relevant authorities in Australia and to put a complete stop to the case, provided you agree with the offer either at AUS$1.4 million with GST, CGT and other taxes, if any, borne by me or at a fair price for both parties as stated in my letter dated 22 November 2002. I await your reply."
There is no evidence before the court as to whether there was any reply to that letter.
On 13 July 2004, Fairweather & Lemonis, the plaintiff's new solicitors, wrote to each of the defendants stating that the plaintiff had for some time substantial concerns relating to the appropriation of funds by each of the defendants and that the plaintiff had obtained advice from Mr Herbert who had reviewed the financial accounts of the companies.
Prior to the letter which the defendants received from Fairweather & Lemonis, the plaintiff had not sought to exercise its rights of inspection of the financial records of the first defendant under the order of this Court, and, in so far as the defendants were concerned, had taken no further steps to progress his interest in inspection the records of the defendants, since an exchange of correspondence between solicitors dated 30 October 2001 and 1 November 2001.
The plaintiff's application
In his application the plaintiff seeks an order authorising the plaintiff, his Singaporean solicitor, Mrs Patricia Quah and Mr Jeffery Herbert to inspect the books of the each of the three defendants.
In respect of the first defendant the plaintiff seeks inspection of the books in relation to the matters which are set out at pars 7 and 8 of Mr Herbert's affidavit of 26 July 2004.
In relation to the second defendant, the plaintiff seeks inspection of the books in relation to the matters which are set out at pars 9, 10 and 11 of Mr Herbert's affidavit of 26 July 2004.
In relation to the third defendant, the plaintiff seeks inspection of the books in relation to the matters which are set out at par 12 of Mr Herbert's affidavit of 26 July 2004.
The matter set out at pars 7 and 8 of Mr Herbert's affidavit are as follows:
(a)The fluctuations in the book value of the first defendant's shares in its subsidiaries from 1993 to 1998 are as follows:
1993 $1,911,390
1994 $2,405,485
1996 $2,672,894
1997 $2,070,982
1998 $1,872,006
(b)the payment of accounts and management fees from 1995 to 1998;
(c)the write off of a loan in the sum of $102,546 in 1996 to an entity described only as "Vanimo";
(d)the payment of consultant's fees in the sum of $73,804 for the period 1993 to 1994;
(e)the expense of $71,868 which appears in 1995 as an 'exchange variation loss';
(f)the payment of interest in the total sum of $318,194 for the period 1993 to 1996;
(g)the reversal of payment of $196,000 for interest in 1997 (which was paid in 1996); and
(h)the payment of $83,200 for salaries for the period 1994 to 1996.
As to the second defendant, the items are:
(a)The payment of $200,000 which appears in the second defendant's profit and loss statement as "Admin charges";
(b)the circumstances and terms of the loan by Kelmine for the sum of $850,000;
(c)the payment of management fees in the total sum of $909,996 since 1996 and the payment of interest for the period 1996 to 2003 in the total sum of $2,464,054.
In relation to the third defendant the items comprise the following payments of administration charges:
1993 $88,500
1994 $69,500
1997 $50,000
Most of the matters referred to in Mr Herbert's affidavit were among the matters that been raised in the plaintiff's letters of May 2000 and June 2000 making extensive enquiries of the defendants' affairs.
At the hearing of this application the plaintiff relied upon affidavits sworn by him on 23 July 2004 and 25 August 2004, the affidavit of Steven John Lemonis, sworn 27 July 2004 and the affidavit of Jeffery Laurence Herbert, sworn 26 July 2004 and a further affidavit of Mr Herbert sworn on 25 August 2004. The defendants relied on the affidavit of Mr Richard Michel dated 11 August 2004. There was no cross examination.
Senior counsel for the defendants, Mr Murphy SC, accepted that the first defendant was under an obligation to permit the plaintiff, as a director of the first defendant, to inspect the financial records of the first defendant by reason of the existence of the order of this Court. However, Mr Murphy SC argued that no further order should be made by the Court on the grounds that in making the application the plaintiff was not acting in good faith and for a proper purpose. He argues that it is more likely than not that the plaintiff's dominant purpose in seeking inspection is to put pressure on the other shareholders of the first defendant to purchase his 10 per cent shareholding in the first defendant.
Application under s 247A of the Corporations Act
I turn to consider the plaintiff's application under s 247A of the Corporations Act.
Section 247A of the Act provides as follows:
"247A(1) On application by a member of a company or registered managed investment scheme, the Court may make an order:
(a)authorising the applicant to inspect books of the company or scheme; or
(b)authorising another person (whether a member or not) to inspect books of the company or scheme on the applicant's behalf.
The Court may only make the order if it is satisfied that the applicant is acting in good faith and that the inspection is being made for a proper purpose.
247A(2) [Copies] A person authorised to inspect books may make copies of the books unless the Court orders otherwise.
247A(3) [Who may apply for the order] A person who:
(a)is granted leave under section 237; or
(b)applies for leave under that section; or
(c)is eligible to apply for leave under that section;
may apply to the Court for an order under this section.
247A(4) [Order] On application, the Court may make an order authorising:
(a)the applicant to inspect the books of the company;
(b)another person to inspect the books of the company on the applicant's behalf.
247A(5) [When Court may make order] The Court may make the order only if it is satisfied that:
(a)the applicant is acting in good faith; and
(b)the inspection is to be made for a purpose connected with:
(i)applying for leave under section 237; or
(ii)bringing or intervening in proceedings with leave under that section.
247A(6) [Copies] The person authorised to inspect books may make copies of the books unless the Court orders otherwise."
Section 247A(3)(c) provides that a person who is eligible to apply for leave under s 237 may apply to inspect the books of a company. It is that provision upon which the plaintiff relies to bring this application. The plaintiff is a member and director of the first defendant and a former director of the second and third defendants.
Before coming to s 237, it is necessary to have regard to s 236 of the Corporations Act. This section provides:
"236(1) [Who may bring proceedings] A person may bring proceedings on behalf of a company, or intervene in any proceedings to which the company is a party for the purpose of taking responsibility on behalf of the company for those proceedings, or for a particular step in those proceedings (for example, compromising or settling them), if:
(a)the person is:
(i)a member, former member or person entitled to be registered as a member, of the company or of a related body corporate; or
(ii)an officer or former officer of the company; and
(b)the person is acting with the leave granted under s 237."
Section 236(2) of the Act provides that proceedings brought on behalf of the company must be brought in the company's name.
Section 237(1) says that a person referred to in par 236(1)(a) may apply to court for leave to bring or intervene in proceedings. Section 237(2) says:
"237(2) [Criteria for leave] The Court must grant the application if it is satisfied that
(a)it is probable that the company will not itself bring the proceedings, or properly take responsibility for them, or for the steps in them; and
(b)the applicant is acting in good faith;
(c)it is in the best interests of the company that the applicant be granted leave;
(d)if the applicant is applying for leave to bring the proceedings - there is a serious question to be tried; and
(e)either:
(i)at least 14 days before making the application, the applicant gave written notice to the company of the intention to apply for leave and of the reasons for applying; or
(ii)it is appropriate to grant leave even though subparagraph (i) is not satisfied."
The principles to be applied in an application under s 247A were considered by Debelle J in Acehill Investments Pty Ltd v Incitec [2002] SASC 344. The Acehill case was not a case in relation to s 247A(3) to (5) as is this case, but nevertheless, I consider that the principles are equally applicable to this case. At [29] Debelle J said:
"1. The requirement that the applicant is acting in good faith and that the inspection is to be made for a proper purpose expresses a composite notion and the court will determine whether each has been demonstrated by applying an objective test: Barrack Mines Ltd v Grants Patch Mining Ltd [1988] 1 Qd R 606; Knightswood Nominees Pty Ltd v Sherwin Pastoral Company Ltd (1989) 7 ACLC 536 at 540 ‑ 541.
2. The onus is on the applicant to demonstrate that he is acting in good faith and that the inspection is for a proper purpose: Intercapital Holdings Ltd v M E H Ltd (1988) 6 ACLC 1068 at 1074.
3. The section operates where the applicant seeks to protect some specific or personal right by the making of the order. Examples are where a shareholder contemplates proceedings under s 233 of the Corporations Act (the statutory successor of s 320 of the Companies Code); Re Augold NL [1987] 2 Qd R 297 at 308 ‑ 309; Re Humes Ltd (1987) 5 ACLC 64 at 68 ‑ 69; Grants Patch Mining at 107; or where a shareholder reasonably takes the view that a transaction could adversely affect his investment and he seeks to investigate the transaction for the purpose of determining what action he should take: Intercapital Holdings at 1074 ‑ 1075; or where a shareholder seeks to ascertain facts for the purpose of considering a takeover offer: Knightswood Nominees Pty Ltd v Sherwin Pastoral Company Ltd at 539. Other examples are provided in a number of the cases listed in the appendix.
4. If the applicant's primary or dominant purpose is a proper purpose, it is not to the point that an inspection may be of benefit to the applicant for some other purpose: Re Humes Ltd at 70; Grants Patch Mining at 109 ‑ 110; Cescastle Pty Ltd v Renak Holdings Ltd (1991) 9 ACLC 1333 at 1335.
5. The rights provided by s 247A should not be regarded as affecting the basic rule of company law that a shareholder should not ordinarily have recourse to the courts to challenge a managerial decision made by or with the approval of the directors: Re Humes Ltd at 68 ‑ 69; Grants Patch Mining Ltd at 614.
6. Since every shareholder has a right to apply under the section for an inspection order, it is no answer to an application that, if an order is made, the applicant may acquire information not available to other shareholders and thereby be in a more advantageous position than those shareholders: Re Humes Ltd at 70; Grants Patch Mining at 615.
7. Applicants do not necessarily lack a proper purpose merely because
(a)they are hostile to other directors; or
(b)they will, after inspection, have more information than other members: Re Humes Ltd at 70.
8. The procedure under s 247A is not intended to be a process as wide‑ranging as the process of discovery of documents so that, as a general rule, inspection will be confined to, say, the results of decisions of directors rather than all the documents such as board papers leading to decisions: Re Claremont Petroleum NL (No 2) [1990] 2 Qd R 310 at 314. I emphasise that this is a general rule. There may be occasions where it is proper to admit inspection of board papers. I examine this question in a moment.
9. Even where an applicant is acting bona fide and has shown a proper purpose, the court has a discretion whether to order inspection: Re Humes Ltd at 70."
Under s 247A(5) the plaintiff must satisfy the court that the applicant is acting in good faith and that inspection is to be made for a purpose connected with applying for leave under s 237 of the Corporations Act. In the case of Caveat Pty Ltd v Baillie & Ors [2002] WASC 241 Master Sanderson held that the determination of the presence or absence of good faith for the purposes of s 247A involves a consideration of the matters raised in an existing or anticipated application under s 237 of the Corporations Act.
Mere assertion that inspection is to be made for that purpose is insufficient. In the case of Stewart v Normandy NFM Ltd [2000] SASC 344 in relation to an application under s 198F, Burley J said:
" ... the ability to inspect the books of a company is limited to the purposes of the proposed legal proceeding. Unless and until the plaintiff adduces sufficient evidence as to the basis upon which he advances the proposal to bring proceedings and which set out the nature of the proposed proceeding, the court cannot make a finding as to the existence of good faith nor can a determination be made as to whether or not the inspection of the company's books is for the purposes of the legal proceedings referred to. [13]
... It is difficult to see how the plaintiff can propose in good faith to bring proceedings when at the same time the reason for his requesting inspection of the company's books is to determine whether any wrongful acts, breach of duty or conflicts of interest and such like have arisen. When the reason for the application is so phrased, I think the court must exercise great caution in determining whether or not the plaintiff proposes in good faith to bring the relevant proceedings ... "
In the case of Swansson v R A Pratt Properties Pty Ltd & Anor (2002) 42 ACSR 313, Palmer J considered the good faith requirement in the context of an application by a party for leave pursuant to s 237(1) of the Corporations Act 2001 (Cth) to bring derivative proceedings. At 232 of the judgment Palmer J said of the applicant in that case:
"The circumstances to which I have referred, taken together, cause me to hesitate in accepting at face value the untested assertions of Ms Swansson. The onus is upon her to demonstrate to the court's satisfaction that she is acting in good faith in making the application. In my opinion, she has not discharged that onus. I am not able to feel a comfortable degree of satisfaction that sufficient facts have emerged to justify a finding in Ms Swansson's favour."
At the hearing Senior Counsel for the plaintiff did not press for inspection of all the matters initially set out in the application. However, I consider that for the purposes of assessing whether I am satisfied that the plaintiff is acting in good faith and for the proper purpose it is relevant to have regards to the application as originally brought.
In my view the plaintiff has, for the following reasons, not discharged the onus of satisfying me that he is acting in good faith nor that inspection is to made for a purpose connected with applying for leave under s 237 of the Corporations Act.
Firstly, the plaintiff has not adduced evidence of sufficiently probative value for me to be satisfied as to the existence of good faith nor as to whether the inspection is to be made for a purpose connected with applying for leave under s 237 of the Corporations Act. Adapting the dictum of Burley J in Stewart (supra) to the circumstances of this application, for the court to be satisfied as to the purpose of the application it is incumbent on the plaintiff to place evidence before the court as to the nature of the potential action under s 236 of the Corporations Act, the grounds upon which such potential action could be brought, the relationship between the categories of the documents that are sought to be inspected and the potential action, and how he or she believes inspection of those documents may advance the decision making process as whether to bring an application under s 237 of the Corporations Act to bring the potential action.
The evidence produced by the plaintiff falls short of meeting these criteria. In so far as there is any evidence on these matters, the evidence of both of the plaintiff and Mr Herbert is as an unsatisfactory level of generality.
The plaintiff has not deposed specifically as to the nature of the potential action in the name of each of the defendants under s 236 that he believes could be brought. There is some evidence of the nature of the concerns of the plaintiff which may give some indication of the nature of the possible action. This is to be found in par 14 of his affidavit sworn of 23 July 2004 where the plaintiff says that following his review of the accounts of the defendants for the years 1993 to 1999 (which he undertook in 2000) that he became concerned about "certain payments being made by the defendants to directors of the defendants or entities associated with the directors of the defendants, and other expenses which appeared to be quite high". Significantly, the plaintiff does not say that his concern is related to the fact that there were payments made by the defendants to directors of the defendants or related entities, but only that the payments "appeared to be quite high"
As to the question of there being evidence of the grounds on which such application may be brought, the plaintiff then says that he consulted with Mr Yeap in July 2000 who said that he should investigate his concerns. He then explains that he obtained an order from this Court for the inspection of the financial records of the first defendant which was never utilized. He then says that he continued to have concerns and in May 2004 he asked Mr Herbert to investigate the concerns. The plaintiff says that Mr Herbert inspected the accounts. The plaintiff says that in the affidavit to be sworn by Mr Herbert (which would presumably be the affidavit of 26 July 2004) Mr Herbert confirms the concerns the plaintiff had. However, Mr Herbert's affidavit is also at a high level of generality. All Mr Herbert says is that "he has formed the view that the plaintiff should investigate" certain nominated matters. He does not condescend to any particulars in the context of the plaintiff's expressed concerns about the payments appearing to be quite high.
I take, for example, Mr Herbert's recommendation that the plaintiff should investigate the payment of consultants' fees in the total sum of $73,804.00 for the period 1993 to 1994. At the time the plaintiff instructed Mr Herbert in May 2004 the plaintiff knew from previous enquiries that he had made that the consultants fees there referred to were fees paid to Michel & Co and he knew that Michel & Co were public accountants that provided consultancy services to the group. He also knew that the Board had in 1996 confirmed the services of Michel & Co at an hourly rate of $50 per hour with a monthly minimum of 100 hours. However, there is no assessment by Mr Herbert as to the basis on which he has come to the view that the fees charged by Michel & Co of approximately $37,000 per year should be investigated in the context of the bringing of a possible action founded on a concern that payments made in related entities appeared to be quite high.
As a further example, Mr Herbert says that the interest payments made by the second defendant in the total sum of $2,464,054.00 during the period 1996 to 2003 should be investigated. Again, Mr Herbert does not condescend to particulars as why he believes that the payment of interest should investigated when the evidence shows that the second defendant borrowed heavily (primarily from BankWest in the sum of $3.7 million) in 1996 financial year to purchase the WA Club's half interest in the land which it co‑owned with the WA Club, and that the second defendant has carried substantial debt since then.
Likewise, no assessment is made by Mr Herbert of the reasonableness of quantum of the management fees or the administration fees and he provides no reason for coming to the view that those fees should be investigated in the context of bringing a possible action founded on the concern that the payments made appeared quite high.
Further, Mr Herbert also says that the plaintiff should also investigate the fluctuations in the book value of the first defendant's shares in its subsidiaries from 1993 to 1998. No explanation is set out in the evidence as to the reason the why the inspection of records in relation to this matter would assist the plaintiff in considering whether to apply bring an action founded on a concern that payments that have been made to directors and related entities appeared to be quite high. Senior Counsel for the plaintiff was not able to assist by providing any explanation as to the relevance of this matter to any possible action that the plaintiff might bring under s 236 of the Corporations Act.
Further, in light of the fact that some of the matters sought to be investigated occurred 12 years ago, there is nothing in the evidence as to the basis on which the plaintiff would be entitled to pursue such matters in a possible s 236 action if leave was granted.
Accordingly, I am left in the state where there is no direct evidence as to the nature of the potential action the plaintiff is considering bringing under s 236. It is only alluded to as being in relation to a concern that payments made by the defendants to directors and related entities appeared to be "quite high". Further, in the context of a potential action founded only on an expressed concern about payments to directors appearing to be "quite high", Mr Herbert has asserted that certain payments "should be investigated" without assessing or commenting upon the reasonableness of the quantum of the payments in question; and he has included among the matters he which he says should be investigated a matter which on its face has no relationship to the expressed concern of the plaintiff. Further, the potential limitation issue is not dealt with. In my view, this is an inadequate evidentiary basis for me to be satisfied that the plaintiff is acting in good faith and that the inspection is to be made for a purpose connected with applying for leave under s 237 of the Corporations Act.
Secondly, I have serious doubts as to the good faith of the plaintiff in bringing this application arising from the manner in which the plaintiff permitted Mr Herbert to depose to the need to investigate the circumstances of a loan made by Kelmine Pty Ltd to the second defendant in 2001. In his affidavit of 26 July 2004 Mr Herbert refers to the fact that in 2001 that the second defendant retired $1,000,000 of its debt from BankWest and a loan which was raised from what he refers to "as an entity described only as Kelmine" for the sum of $850,000. He says that it would be appropriate to obtain further details of how the loan by "Kelmine" arose and the terms of the loan agreement.
The evidence reveals that, although that the plaintiff was not present at the Board meeting on 19 July 2001 that approved the loan from Kelmine Pty Ltd, the plaintiff subsequently learned of the resolution of the Board of Directors to approve the loan, that he made enquiries by a letter dated 23 November 2001 as to the terms of the loan and that the information was provided to him by a letter from Mr Michel dated 27 November 2001. Further, the evidence also shows that the plaintiff attended a meeting of the directors on 1 October 2003 at which the directors agreed to borrow $600,000 from Kelmine Pty Ltd in order to reduce the debt to the exposure to debt due to BankWest to $2 million, and that Mr Tan, one of the directors, declared an interest. The minutes of the meeting reveal that the plaintiff seconded the resolution of the Board accepting the offer of the loan from Kelmine Pty Ltd.
It is plain therefore that at the time of instructing Mr Herbert in May 2004 and at the time and at the time of making this application in July 2004, the plaintiff knew "the entity known described only as Kelmine" (as it was referred to in Mr Herbert's affidavit), was in fact Kelmine Pty Ltd, a company associated with one of the directors Mr Tan. At that time, the plaintiff also knew from enquiries he had made of Mr Michel of the terms of the $850,000 loan referred to in Mr Herbert's affidavit. Further, by that time in 2004 the plaintiff knew enough about Kelmine Pty Ltd to have seconded a motion at a board meeting in October 2003 to borrow $600,000 from Kelmine Pty Ltd. However, notwithstanding the extent of his knowledge of the affairs of Kelmine Pty Ltd, and having seen Mr Herbert's proposed affidavit of 26 July 2004 before it was sworn, the plaintiff allowed Mr Herbert to depose that the circumstances of, and terms of, the loan in 2001 for $850,000 from "an entity known only as Kelmine" should be investigated. I infer, therefore, that the plaintiff did not advise Mr Herbert of the extent of his knowledge of Kelmine Pty Ltd, nor of his knowledge of the circumstances of the making of, and the terms of, the loan of $850,000 in 2001, prior to Mr Herbert swearing his affidavit. I infer further that that the plaintiff was content for an affidavit to be sworn deposing to the need to investigate a matter of which he was already familiar. In my view, this substantially undermines the plaintiff's case that the application was made in good faith and for a proper purpose.
Thirdly, I have substantial doubts as to the good faith of the plaintiff in bringing this application arising from his failure to explain why as a director of each of the defendants, he did not complain about the transactions he now seeks to investigate, at the time of the transactions in question or within a reasonable time thereafter. Several of the matters which the plaintiff now seeks to investigate as part of this application relate to transactions that occurred in as far back as 1993. For example, the plaintiff wants to inspect documents relating to the payment of consultancy fees that was paid by the first defendant in 1993 and the payment of administration charges by the third defendant in 1993. There are other matters which go back to 1994 and 1995. The remarkable thing about this application is that at the time when the transactions which the plaintiff now wishes to investigate, occurred, he was a director of each of the defendants in question. There is no explanation offered by the plaintiff as to why he did not investigate the transactions at the time that they were proposed or at least a reasonable time after they occurred. There is an element of unreality about a application by a director and a former director to inspect books with a view to investigating whether to bring an action in the name of each of the companies presumably against fellow directors in respect of transactions which occurred during the period that the applicant was himself a director, without any explanation being given of the failure to inform himself of the transactions in question at the time or within a reasonable time thereafter, and why no complaint was made at the time of the transactions or within a reasonable time thereafter. A further factor which causes me to have doubts as to the good faith of the plaintiff in bringing this application founded on an assertion that the information is needed in order to contemplate whether to bring an action under s 236, is that many of the transactions occurred so long ago that any action in respect of those transactions is likely to be statute barred. For example, one of the transactions the plaintiff wants to investigate is the payment of consultancy fees to Michel &Co in 1993 and 1994. These payments were made 11 and 12 years ago respectively.
Fourthly, I have doubts as the good faith of the applicant in bringing this application arising from his failure to explain the delay in not progressing his interest in obtaining inspection of the books for two and half years after November 2001. The majority of matters in respect of which plaintiff in this application seeks inspection were also the subject of the inquiries which the plaintiff first made by his letter of 18 May 2000. Accordingly, these are issues of which the plaintiff was aware at the time that he obtained the consent order of this court on 17 January 2001 and during the subsequent period of correspondence between and the solicitors for the plaintiff and the defendants which ended in November 2001. The plaintiff now seeks to revive his quest to obtain inspection of documents in respect of those same matters and so seeks to rake over old coals. In my view, in an assessment of good faith and proper purpose, it was incumbent on the plaintiff to explain the delay the two and a half year delay in taking steps to progress his interest in inspecting the defendants' documents. In his affidavit of 25 August 2004, the plaintiff seeks to explain the delay by saying that he fell out with his former solicitor and then he became involved in a complaint against his former solicitor with the Legal Practice Board. He also refers to engaging a Singaporean solicitor. In my view the explanation is inadequate in that the plaintiff does not depose to why, once he fell out with his previous solicitor, he did not immediately engage a new solicitor in Perth to continue with the quest to obtain access to the documents. The fact that he was involved in a Legal Practice Board matter with his former solicitor would not preclude the plaintiff from engaging a different solicitor in Western Australia.
Fifthly, I am satisfied that on the basis of the language used by the plaintiff in his correspondence that the intention of the plaintiff was to induce an acceptance of his offer to sell his shares by linking the threat of continuing his agitation to obtain inspection of the defendants' documents to his offer to sell his shares.
The evidence is that the plaintiff decided to sell his shares in the first defendant in 1999. The plaintiff first made his requests for the annual accounts of the defendants at the end of 1999, and then followed that up with the extensive requests for information in 18 May 2000 and 23 June 2000. The information which he requested included many of the same matters which the plaintiff now wishes to investigate in this application. On 17 January 2001 the plaintiff obtained the orders from this Court for the inspection of the financial records of the first defendant. The plaintiff never inspected the financial records under that order.
At the board meeting of 31 August 2001 there was discussion about assisting the plaintiff in meeting his concerns in order to avoid incurring further legal costs. The minutes record that the plaintiff responded by saying that "if his lawyers did not win he would deal with the matter in another way". The plaintiff disagreed that he has said those words. In letter of 28 September 2001 the plaintiff said that what he really meant was that "he would request the authorities such as ATO, ASIC and etc to inspect the books and records of the group on his behalf".
On 31 October 2001 the plaintiff made an offer to the other shareholders in the first defendant to sell his shares in the first defendant for $1.65million. The letter is referred to above. The shareholders responded by offering to let the plaintiff sell the whole hotel property for a price not less than $22.2 million. The plaintiff responded with a letter dated 12 November 2001 in which he stated that unless his offer is accepted he will "have no alternative but to adopt other legitimate avenues available to me thereafter WITHOUT FURTHER NOTICE". In his affidavit of 25 August 2004 the plaintiff says that he intended to indicate that if an agreement could not be reached for the disposition of his shares then he would continue his investigations into the defendants. In my view, the use of the capital letters is significant in that it indicates an emphasis on the threat of a sanction in the event that the offer is not accepted.
Further, during 2002 there were exchanges of correspondence between the plaintiff and the shareholders of the first defendant whereby the plaintiff offered to sell his shares. These letters are referred to above. By a letter 26 November 2002 the shareholders rejected the offer made by the plaintiff in his letter of 22 November 2002. The plaintiff then responded with a letter dated that 5 December 2002 which included the following sentence:
"I confirm that no action will be taken by me to approach the relevant authorities in Australia and to put a complete stop to the case, provided you agree with the offer either at $1.4 million with GST, CGT and other taxes, if any, borne by me or at a fair price for both parties as stated in my letter dated 22/11/2002."
I find that the plaintiff’s letters dated 12 November 2001 and 5 December 2002 referred to above, disclose threats to continue his agitation to inspect the defendants' documents in order to induce the shareholders to accept the offer to buy his shares. I also find that the plaintiff intended to convey those threats. This finding is based on the ordinary meaning of the language used in the letters, the use of the capital letters in the letter of 12 November 2001, and the plaintiff's affidavit evidence referred to above.
Sixthly, I also entertain doubts as to the plaintiff's good faith and as to the purpose for which the plaintiff brings this application based on his refusal in 2000 and 2001 to advise the board of his purpose for commencing and carrying on with his investigation into historical matters going back to 1993. He first refused to disclose his purpose for the investigations at the Board meeting in July 2000 and then again he refused to disclose his purpose for wishing to inspect the documents in June 2001 when his solicitors wrote on 7 June 2001 saying that their instructions were not to disclose the plaintiff's purposes. Finally, on 14 June 2001 his solicitors wrote saying that the plaintiff had been told that after the purchase of the half interest of the WA Club the first defendant "would generate healthy and admirable profits" and that his had not occurred. It was said that he wanted to investigate the reason for this. I do not however regard that explanation as satisfactory. The purchase of the interest of the WA Club occurred in October 1995, but the plaintiff had included among the matters he inquired into, matters which went back as far as 1993, well before the dispute with the WA Club had even been resolved by the High Court.
I also reject as unsatisfactory the explanation in the plaintiff's solicitor's letter of 14 June 2001 that the plaintiff wishes to satisfy himself that the financial records of the defendants are accurate and reliable. That explanation does not sit well with the unexplained failure of the plaintiff as a director to investigate the transactions which he subsequently sought to investigate, at the time that they happened or shortly thereafter, and his failure to explain why he did not seek to ensure that the financial records (which went back to 1993) were accurate and reliable at the time that they were published.
I also reject as unsatisfactory, because it is at such a high level of generality, the explanation in the letter that the plaintiff was keen to ensure that the first defendant has not "been the subject of conduct which is oppressive, unfairly prejudicial or unfairly discriminatory". Further, the plaintiff's professed concern is also inconsistent with his unexplained failure as a director to investigate the matters the subject of his inquiries at an earlier time.
I, accordingly, infer from the failure of the plaintiff to disclose in 2000 and 2001 his reasons for commencing and continuing his investigations, and the fact that thereafter he used the threat of continuing these investigations to try and induce an acceptance of his offer to sell his shares, that the plaintiff's purpose in starting and continuing the investigation into these historical matters, was to put pressure on the shareholders of the first defendant to buy his shares.
In view of these findings, the fact that the matters which defendant wishes to investigate pursuant to this application are essentially the same matters which were the subject of the plaintiff's queries in 2000 (and so include matters going back to 1993) and the other reasons set out above, I am not satisfied that the plaintiff's dominant purpose in bringing this application was not to put pressure on the shareholders to buy his shares. In fact I am satisfied, on a balance of probabilities, that it was and is the plaintiff’s dominant purpose in bringing this application to put pressure on the shareholders of the first defendant to buy the plaintiff's shares in the first defendant.
Further, the reasons set out above, I am not satisfied that the plaintiff is acting in good faith nor that the inspection is to be made for a purpose connected with applying for leave under s 237 of the Corporations Act. I would, therefore, dismiss the plaintiff's application to inspect the books of each of the defendants under s 247A of the Corporations Act.
The application for the inspection of the books of the first defendant under common law
A director has a common law right to inspect the documents of the company as an incident of his fiduciary duty to act in the interest of the company. The right is given so that the director can advance the interest of the company. In an application by a director to be permitted to inspect the documents of the company of which he is a director a court is to assume, in the absence of evidence to the contrary, that the director intends to exercise this right for the benefit of the company and not for some ulterior purpose. However, the court retains a discretion to preclude a director from exercising his or her common law right where the evidence establishes that exercise of the right is not in furtherance of an incident of the fiduciary duty owed by the director (Bennetts v Board of Fire Commissioners of New South Wales (1967) 87 WN (pt 1) 307).
In considering the plaintiff's application under common law, the onus is on the first defendant to establish that the plaintiff's application is not made for the purpose of exercising his common right to inspect the documents as an incident of his fiduciary duty that he owes to the company, but for a collateral purpose; in this case, to put pressure, in his capacity as a shareholder, on the other shareholders to buy his shares in the first defendant. This is a difficult task in the absence of cross‑examination of the plaintiff. However, the facts of this case are unusual and by reason of the explicit terms of the plaintiff's letters and the other matters set out in my reasons above, I am of the view the defendants have discharged the burden.
I find, therefore, that on the balance of probability, in applying to inspect the books of the first defendant, the plaintiff is making the application for the an ulterior purpose of benefiting himself in his capacity as a shareholder of the first defendant by using it as a means of putting pressure on the other shareholders to purchase his shares in the first defendant.
I would, accordingly, dismiss the plaintiff's application unde the common law.
The application for inspection of financial records under s 290 of the Corporations Act
I now turn to deal with the plaintiff's application under s 290 of the Corporations Act.
Senior Counsel for the first defendant argues that I should make no order under this section of the Corporations Act as there is already an order in existence which was made by this Court and it is open to the plaintiff to inspect the financial records of the first defendant in accordance with that order. I accept Senior Counsel's submission. It would undermine court process if a court was to make two orders in respect of the same subject matter, particularly in circumstances where the party who has previously sought the order has simply not sought to act pursuant to it.
I, therefore, decline to make that order and dismiss the plaintiff's application under s 290 of the Corporations Act.
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