Coates v Classic Minerals Ltd
[2016] WASC 371
•16 NOVEMBER 2016
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS
CITATION: COATES -v- CLASSIC MINERALS LTD [2016] WASC 371
CORAM: ACTING MASTER STRK
HEARD: 14 SEPTEMBER 2016
DELIVERED : 16 NOVEMBER 2016
FILE NO/S: COR 140 of 2016
BETWEEN: SHELDON COATES
Plaintiff
AND
CLASSIC MINERALS LTD
Defendant
Catchwords:
Corporations - Application to inspect company books and records under s 247A of the Corporations Act2001 (Cth) - Whether applicant is acting in good faith and the inspection is to be made for a proper purpose
Legislation:
Corporations Act 2001 (Cth)
Result:
Application granted
Category: B
Representation:
Counsel:
Plaintiff: Mr M I Lenhoff
Defendant: Mr I R Gillon
Solicitors:
Plaintiff: Williams + Hughes
Defendant: Lawton Gillon
Case(s) referred to in judgment(s):
Acehill Investments Pty Ltd v Incitec Ltd [2002] SASC 344; (2002) 223 LSJS 97
Barrack Mines Ltd v Grants Patch Mining Ltd (1988) 6 ACLC 97
Barrack Mines Ltd v Grants Patch Mining Ltd (No 2) [1988] 1 Qd R 606
Biala Pty Ltd v Mallina Holdings Pty Ltd [1990] WAR 371
Hanks v Admiralty Resources NL [2011] FCA 891; (2011) 85 ACSR 101
Intercapital Holdings Ltd v MEH Ltd (1988) 13 ACLR 595
McNeill v Hearing & Balance Centre Pty Ltd [2007] NSWSC 942
Mesa Minerals Ltd v Mighty River International Ltd [2016] FCAFC 16
Quinlan v Vital Technology Australia Ltd (1987) 5 ACLC 389
Re Claremont Petroleum NL [1990] 2 Qd R 31
Re Style Ltd; Merim Pty Ltd v Style Ltd [2009] FCA 314; (2009) 255 ALR 63
Rowland v Meudon Pty Ltd (2008) 220 FLR 362
Unity APA Ltd v Humes Ltd (No 2) [1987] VR 474
ACTING MASTER STRK: The plaintiff (Mr Coates) has made an application to the court under s 247A of the Corporations Act2001 (Cth) for orders to inspect the books of the defendant company (Classic Minerals). The books in question are defined in Schedule A to a minute of proposed orders filed on behalf of Mr Coates on 29 June 2016. (Schedule A is reproduced in full below.)
Background
Classic Minerals is an exploration company based in Western Australia, which was incorporated on 1 May 2006 and was listed on the Australian Stock Exchange on 22 May 2013.[1]
[1] Affidavit of Sheldon Philip Coates sworn 8 June 2016 [11], [16].
Mr Coates is a shareholder of Classic Minerals in his own right, holding 2,675,000 shares. The Sheldon Coates Superannuation Fund (Fund), of which Mr Coates is co-trustee, holds 16,875,000 shares, which accounts for 5.49% of the shareholding in Classic Minerals.[2]
[2] Affidavit of Sheldon Philip Coates sworn 8 June 2016 [5], [7] ‑ [8].
In short, Mr Coates says that he wishes to inspect certain books of Classic Minerals to investigate whether directors or officers of Classic Minerals have managed the company properly and consistent with their statutory and fiduciary duties, and to investigate potential claims against the directors, officers and the company.
Basis for applicant's concern - 'cash outflow'
In the first affidavit of Mr Coates sworn on 8 June 2016 (First Coates Affidavit), Mr Coates says 'For the reasons set out below, I wish to inspect certain books and records of [Classic Minerals] to investigate the management of [Classic Minerals] by its officers'.[3]
[3] Affidavit of Sheldon Philip Coates sworn 8 June 2016 [4].
At [16] ‑ [19] of that affidavit, Mr Coates goes on to explain the underlying concern which grounds his application. From information released publicly by Classic Minerals, Mr Coates:
(a)notes the quantum raised by the listing of Classic Minerals on the Australian Stock Exchange in May 2013; and
(b)comments that there was a 'high rate of cash outflow experienced by [Classic Minerals] in its first few months on the ASX'.[4]
[4] Affidavit of Sheldon Philip Coates sworn 8 June 2016 [16] ‑ [20].
Mr Coates then identifies particular transactions entered into by Classic Minerals that he takes issue with, when viewed in light of the 'high rate of cash outflow'.
Mr Justin Doutch is the Managing Director of Classic Minerals. On 10 August 2016, he swore an affidavit in opposition to the application (Doutch Affidavit). Among other things, he comments on the particular transactions identified by Mr Coates as being suspicious.
Related party transactions that the applicant says are suspicious
Annexed to the First Coates Affidavit is a copy of the annual report for the company for the year ended 30 June 2015 (2015 Annual Report) and the year ended 30 June 2013 (2013 Annual Report).[5] The notes to the financial statements for the year ended 30 June 2015 include Note 25, which lists the transactions entered into by Classic Minerals with its directors, director related entities and other related entities.[6]
[5] Affidavit of Sheldon Philip Coates sworn 8 June 2016, 'SC1' and 'SC2'.
[6] Affidavit of Sheldon Philip Coates sworn 8 June 2016, 'SC1' at page 51.
It is the applicant's position that the information in Note 25 is limited in that it only provides details on the related party and the nature of the transaction. In the First Coates Affidavit, Mr Coates goes on to raise concern in relation to particular related party transactions identified in Note 25, described below.
James Passaris, Guide Resources Pty Ltd and Aneles Consulting Services Pty Ltd
The first of the related party transactions that Mr Coates is troubled by concerns Mr James Passaris and companies related to him, Guide Resources Pty Ltd (Guide), and Aneles Consulting Services Pty Ltd (Aneles).
Forgiveness of a $265,289 loan to Mr Passaris particularly troubles Mr Coates. The payment of a $100,000 fully refundable deposit to Guide and associated payments in relation to the Cowarna Rocks Tenements, and the terms of Classic Minerals' consultancy agreement with Aneles, also troubles Mr Coates.
In the Doutch Affidavit, Mr Justin Doutch in high level terms explains that Mr Passaris 'conducts a useful and essential role in liaising with shareholders and other stakeholders'. He explains that Mr Passaris incurred a total sum of $265,289 on his credit card which in the view of the directors were properly expenses of the company, although he does not expand upon the nature of the expenses.[7] Mr Doutch also explains the circumstances which lead to a decision not to pursue a project which concerned the Cowarna Rocks Tenements, which was introduced to Classic Minerals by Guide.[8]
Namija
[7] Affidavit of Justin Doutch sworn 10 August 2016 [10.1(a)] ‑ [10.1(b)].
[8] Affidavit of Justin Doutch sworn 10 August 2016 [10.3].
The second related party transaction that Mr Coates is troubled by concerns Namija Pty Ltd (Namija). Mr John Doutch (the father of Mr Justin Doutch, the Managing Director of Classic Minerals) is a consultant to Namija. At its highest, there is a question as to whether Namija was paid commercial rates.
Denarda Holdings Pty Ltd
The third related party transaction that Mr Coates is troubled by concerns Denarda Holdings Pty Ltd (Denarda). Mr John Doutch (the father of Mr Justin Doutch) is presently a shareholder and a former director of Denarda, and Mr Malcolm Doutch (the uncle of Mr Justin Doutch), is presently a director and shareholder of Denarda.[9]
[9] Affidavit of Sheldon Philip Coates sworn 8 June 2016 [32].
The amounts paid to Denarda for drilling services particularly trouble Mr Coates, which include an amount of $200,277 as a pre‑payment for future drilling services.[10]
[10] Affidavit of Sheldon Philip Coates sworn 8 June 2016 [32] ‑ [35].
Mr Coates is also troubled by the engagement of Denarda in circumstances where he says a cheaper quote for the same services had been obtained from a third party.[11] Mr Justin Doutch denies having obtained a quote from a third party that was less than he could obtain from Denarda.[12]
[11] Affidavit of Sheldon Philip Coates sworn 8 June 2016 [35].
[12] Affidavit of Justin Douch sworn 10 August 2016 [10.5(a)].
At the hearing, the applicant sought to rely on a second affidavit, sworn and filed on 29 August 2016 (Second Coates Affidavit).
Paragraphs 5 ‑ 19 of the Second Coates Affidavit largely concern the identity of the third party from which Mr Coates recalled provided a cheaper quote of Denarda, and the circumstances in which the quote was given. Classic Minerals object to the admission of [5] ‑ [19] inclusive of the Second Coates Affidavit into evidence on the basis that the paragraphs address matters beyond what was required to respond to the Doutch Affidavit, and include evidence that could have been included in the First Coates Affidavit. Counsel for Classic Minerals informed the applicant's representatives of the objection on 13 September 2016, a day before the hearing of the application. Counsel for Classic Minerals refers to the prejudice incurred by not having had the opportunity to put on evidence in response to the new matters raised in the Second Coates Affidavit.
In all of the circumstances, including having taken into account the date of service of the Second Coates Affidavit, I am prepared to admit the whole of the Second Coates Affidavit into evidence.
Mining Corporate Pty Ltd
The fourth related party transaction that Mr Coates is troubled by concerns Mining Corporate Pty Ltd (Mining Corporate) - a company which Mr Ken Hunter (a director of Classic Minerals) has an interest in. At its highest, there is a question as to the value derived by Class Minerals from the corporate advisory services provided to it by Mining Corporate Pty Ltd, which in 2013 cost Classic Minerals $74,372.[13]
[13] Affidavit of Sheldon Philip Coates sworn 8 June 2016 [36] ‑ [37].
In the Doutch Affidavit, it is acknowledged that Mining Corporate is a company associated with Mr Ken Hunter, and that Mr Hunter has elected to have his directors fees paid to that company. Mr Justin Doutch also explains that Mr Hunter also provides additional services from time to time to Classic Minerals and is paid on commercial rates, although he does not explain the services provided.[14]
Jett Holdings Pty Ltd
[14] Affidavit of Justin Doutch sworn 10 August 2016 [10.6(a)].
The fifth related party transaction that Mr Coates is troubled by concerns Jett Holdings Pty Ltd (Jett Holdings). Mr John Douch (Mr Justin Douch's father) was a former director of Jett Holdings. At its highest, there is a question as to the nature and value of the services provided by Jett Holdings to Class Minerals, by which Jett Holdings secured 'commissions' in the amount of $407,527, as part of Classic Minerals' public offering.
In the Doutch Affidavit, it is acknowledged that Classic Minerals did pay commissions to Jett Holdings, and it is asserted that the commissions were calculated at prevailing market rates at that time.[15]
[15] Affidavit of Justin Doutch sworn 10 August 2016 [10.7].
Related party loans and deposits that the applicant says are suspicious
Shareholder loans
Mr Coates is troubled by three short term loans advanced to Classic Minerals by its shareholders amounting to $857,704. Interest accrued on the loans at 10% per month for a term of two to three months.[16] This is not an issue expressly addressed in the Doutch Affidavit.
Loans by Classic Minerals
[16] Affidavit of Sheldon Philip Coates sworn 8 June 2016 [41].
Mr Coates is troubled by two unsecured loans advanced by Classic Minerals, the first being a no interest and unsecured loan of $14,339 to Mr John Doutch; the second being an unsecured loan of $248,684 to Mr Passaris.[17]
[17] Affidavit of Sheldon Philip Coates sworn 8 June 2016 [42].
In the Doutch Affidavit, Mr Justin Doutch responds by reference to the matters set out in [10.1] of his affidavit. That is, Mr Justin Doutch explains that the amount of $265,289 was the total amounts incurred by Mr Passaris on his credit card which in the view of the directors were properly expenses of the company, although he does not expand upon the nature of the expenses.[18] He does not comment on the $14,339 loan.
Loan from Ms Samantha Doutch
[18] Affidavit of Justin Doutch sworn 10 August 2016 [10.1(a)] ‑ [10.1(b)].
Mr Coates is troubled by three loans advanced by Classic Minerals to Ms Samantha Doutch (wife of the Managing Director of Classic Minerals). The loans are described as having been made in three tranches of $48,519, $30,000 and $8,000 respectively. Mr Coates notes that interest of 20% was charged on the first and third tranches and Classic Minerals issued 1.8 million shares to Ms Samantha Douch.[19]
[19] Affidavit of Sheldon Philip Coates sworn 8 June 2016 [43].
In the Doutch Affidavit, it is acknowledged by Mr Justin Doutch that a loan was made to Classic Minerals by his wife and the rate of interest charged. In short, Mr Justin Doutch says the rate of interest charged was commercial in light of the risks associated with the loan, and notes that it remains the intention of the company to seek shareholder approval for the issue of shares to Ms Samantha Doutch so as to satisfy the debt.[20]
Nex Metals Exploration Ltd
[20] Affidavit of Justin Doutch sworn 10 August 2016 [10.8(c)(i)].
Mr Coates is troubled by an unsecured deposit that was paid by Classic Minerals to Nex Metals Exploration Ltd (Nex), pending due diligence on up to 16 tenements.
Mr Coates refers to page 39 of the 2013 Annual Report, which records the following note to the financial statements for the year ended 30 June 2013:
NOTE 9: FINANCIAL ASSETS
…
On 27 May 2013, the Company entered into an agreement with New Metals Exploration Limited ('Nex Metals') to place a refundable deposit of $300,000 with New Metals pending due diligence on up to 16 tenements. At at the date of this report, the Company continues to carry out its due diligence on these tenements and no decision has been made as to whether the Company will proceed with the purchase to these tenements. The funds deposited are unsecured.
He also refers to page 33 of the 2015 Annual Report, which records the following note to the financial statements for the year ended 30 June 2015:
NOTE 15: TRADE AND OTHER PAYABLES
…
Refundable deposit - received subject to due diligence (iii)
(iii) On 4 January 2014, the Company entered into a Sale Agreement with New Metals Pty Ltd for the sale of a tenement, subject to due diligence. As at the date of this report, Next Metals Exploration Limited is not proceeding with the sale agreement and the balance of $200,000 and interest of $100,000 is due and payable.
Mr Coates queries the status of the deposit or whether it has been repaid.[21]
[21] Affidavit of Sheldon Philip Coates sworn 8 June 2016 [44] ‑ [46].
In response, Mr Justin Doutch says that Classic Minerals previously advanced the sum of $300,000 to Nex, an unrelated ASX listed company. That loan and interest has been repaid by Nex.[22]
[22] Affidavit of Justin Doutch sworn 10 August 2016 [10.8(d)(i)].
The characterisation provided in the Doutch Affidavit of the transaction as between Classic Metals and Nex is not obviously consistent with the characterisation of the transaction in the notes to the 2015 Annual Report and the 2013 Annual Report.
Transactions that the applicant says appear suspicious as potentially uncommercial
Caravan
The first transaction that Mr Coates is troubled by concerns a rental agreement as between Classic Minerals and Mr Kimberley Doutch (the uncle of Mr Doutch), for two caravans in Kalgoorlie. At its highest, there is a question as to whether Mr Kimberley was paid commercial rates.
Mr Justin Doutch deposes to the agreement having been made on normal commercial rates and being otherwise advantageous to the company.[23]
Garage
[23] Affidavit of Justin Doutch sworn 10 August 2016 [11.1(a)].
The second transaction that Mr Coates is troubled by concerns a rental agreement as between Classic Minerals and Ms Rhianna Doutch (the sister of Mr Doutch), in Kalgoorle. At its highest, there is a question as to whether Ms Doutch was paid commercial rates and that the agreement is on commercial terms.
Again, Mr Justin Doutch deposes to the agreement having been made on normal commercial rates.[24]
[24] Affidavit of Justin Doutch sworn 10 August 2016 [11.1(a)].
Involvement and employment of the Doutch family members
Finally, Mr Coates notes that members of the Doutch family have been involved in Classic Minerals since the time of its incorporation, in various paid roles. Mr Coates particularly notes the arrangements in place with Mr Jacob Doutch; his employment as tenement and exploration manager; his remuneration package from 2012; the modest tenement holding of Classic Minerals; and Mr Jacob Doutch's lack of formal qualifications.[25]
[25] Affidavit of Sheldon Philip Coates sworn on 8 June 2016 [51] ‑ [56].
In response, Mr Justin Doutch acknowledges the relationship as between him and Mr Jacob Doutch; notes that it has never been suggested otherwise that he and Mr Jacob Doutch are related; and notes that it is view of the directors that Mr Jacob Doutch is a required employee and appropriately remunerated for the services he provides to Classic Minerals.[26]
Section 247A of the Corporations Act
[26] Affidavit of Justin Doutch sworn on 10 August 2016 [10.2(a)].
Section 247A of the Corporations Act relevantly provides as follows:
Order for inspection of books of company or registered managed investment scheme
(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 to be made for a proper purpose.
The principles to be applied
The principles to be applied in applications for inspection of books pursuant to s 247A of the Corporations Act were recently summarised in Mesa Minerals Ltd v Mighty River International Ltd [2016] FCAFC 16 [22]:[27]
[27] The principles summarised by Kazmann J were drawn from the summary given by Debelle J in Acehill Investments Pty Ltd v Incitec Ltd [2002] SASC 344; (2002) 223 LSJS 97 [29], and the additional principles identified by Gordon J in Hanks v Admiralty Resources NL [2011] FCA 891; (2011) 85 ACSR 101 [32].
(1)The stipulation that an application be made in good faith and for a proper purpose is a composite notion rather than two distinct requirements: Knightswood Nominees Pty Ltd v Sherwin Pastoral Company Ltd (1989) 7 ACLC 536 at 540‑541. That is to say, as Brooking J put it in Knightswood at 541:
'[T]he reference to good faith colours and so reinforces the requirement of proper purpose. Acting in good faith and inspecting for a proper purpose means acting and inspecting for a bona fide proper purpose. It is as if the case was one of hendiadys.'
(2)Good faith and proper purpose must be proved objectively: Acehill, citing Barrack Mines Ltd v Grants Patch Mining Ltd [1988] 1 Qd R 606 (Full Court) (Barrack Mines Appeal) and Knightswood supra. See also the discussion in C Mantziaris, 'The member's right to inspect the company books: Corporations Act, s 247A' (2009) 83 ALJ 621 at 628‑9.
(3)'Proper purpose' means a purpose connected with the proper exercise of the rights of a shareholder as shareholder and not, for example, as a litigant in proceedings against the company or as a bidder under a takeover scheme: Cescastle Pty Ltd v Renak Holdings Ltd (1991) 9 ACLC 1333 at 1335.
(4)The onus of proof is on the applicant: Quinlan v Vital Technology Australia Ltd (1987) 5 ACLC 389 at 393.
(5)An applicant who has a significant holding and who has been a shareholder for 'some considerable time' will more easily discharge the onus than one who has recently acquired a token holding: Quinlan at 393.
(6)It is not necessary that the applicant show that its interests are different to those of other shareholders: Yara Australia Pty Ltd v Burrup Holdings Ltd [2010] FCA 1273; 80 ACSR 641 at [116].
(7)Nor is it necessary that the applicant have sufficient evidence to bring or make out an action (Praetorin Pty Ltd v TZ Ltd [2009] NSWSC 1237; 76 ACSR 236 at [40]); it is enough that the issue raised by the applicant is 'substantive and not fanciful', not 'artificial, specious or contrived': Re Style Ltd; Merim Pty Ltd v Style Ltd [2009] FCA 314; 255 ALR 63 at [66]‑[67].
(8)Pursuing a reasonable suspicion of breach of duty is a proper purpose: McNeill v Hearing & Balance [2007] NSWSC 942 at [17] citing Barrack Mines Ltd v Grants Patch Mining Ltd (1987) 6 ACLC 97 and the judgment on the unsuccessful appeal: supra.
(9)Provided that the applicant's primary or dominant purpose is a proper one, it is not to the point that an inspection might benefit the applicant for some other purpose: Unity APA Ltd v Humes Ltd (No 2) [1987] VR 474 at 480; Barrack Mines Appeal at 615; Cescastle at 1335.
(10)Applicants do not necessarily lack a proper purpose merely because they are hostile to other directors: Humes at 480.
(11)Neither the fact that an applicant may have had sufficient information earlier nor the fact that an applicant may have other means of obtaining the information is detrimental to an application under the section: McNeill at [23]‑[25].
(12)The procedure under s 247A is not intended to be as wide-ranging as discovery so that the general rule is that inspection will be limited to such documents as evidence the results of board decisions, rather than all board papers leading to decisions, but there may be occasions when it is proper to permit inspection of board papers: Acehill at [31].
(13)The Court has a residual discretion whether to order inspection: Humes at 481.
It was also found in Mesa Minerals Ltd v Mighty River International Ltd[28] that while s 247A operates to protect a specific or personal right, it is not necessary that the interest of the applicant under that section be separate from the interests of the general body of members.[29]
[28] Mesa Minerals Ltd v Mighty River International Ltd [23] ‑ [26].
[29] The court in Mesa Minerals Ltd v Mighty River International Ltd considered Intercapital Holdings Ltd v MEH Ltd (1988) 13 ACLR 595; and Re Claremont Petroleum NL [1990] 2 Qd R 31, and applied Rowland v Meudon Pty Ltd (2008) 220 FLR 362.
Has the application been brought in good faith and for a proper purpose?
The primary issue on this application is whether the court is satisfied that in making this application, Mr Coates is acting in good faith and inspection is for a proper purpose. If the court is so satisfied, a further issue arises as to whether the terms of access proposed by Mr Coates (set out in Schedule A below), are appropriate.
Shareholding
By reasons of his personal shareholding and that of the Fund, Mr Coates has standing to bring the application. Further, it is an accepted principle that an applicant who has significant holding and who has been a shareholder for some considerable time will more easily discharge the burden of showing good faith than one who has recently acquired a token holding.[30]
[30] Hanks v Admiralty Resources NL [32]; see also Quinlan v Vital Technology Australia Ltd (1987) 5 ACLC 389.
While there is no evidence before the court as to the date from which Mr Coates and the Fund held shares in Classic Minerals, it appears that Mr Coates held shares since 2013,[31] and there is no suggestion that the acquisition of the shares was purely for the purpose of bringing the application. Further, it cannot be said that a shareholding in excess of 5% is merely token.
[31] Affidavit of Sheldon Philip Coates sworn 8 June 2016 [20], 'SC6'.
Previous relationship not evidence of lack of good faith or improper purpose
The relationship as between Mr Coates and Classic Minerals is not limited to shareholding. Mr Coates deposes to being a geologist with over 35 years' experience and having provided geological consulting services to Classic Minerals from about November 2012. Mr Coates deposes to having ceased providing consultancy services in about March 2015 as invoices going back six months and totalling $102,433 were unpaid.[32]
[32] Affidavit of Sheldon Philip Coates sworn 8 June 2016 [13] ‑ [15].
In response, Classic Minerals say that the invoices were paid some time ago and Classic Minerals had concerns in relation to the services provided.[33]
[33] Affidavit of Justin Doutch sworn on 10 August 2016 [4].
There is evidence of a breakdown in the relationship as between Classic Minerals and Mr Coates. However, as stated above, applicants do not necessarily lack a proper purpose merely because they are hostile to other directors.[34]
[34] Unity APA Ltd v Humes Ltd (No 2) [1987] VR 474, 480.
By the application, Mr Coates is not seeking orders to inspect the books of Classic Minerals which relate to the services provided to it by Mr Coates, nor the invoices rendered by him.
In all of the circumstances, I do not find that the history of the relationship between the applicant and the company as it concerned consultancy services, as being indicative of a lack of good faith or improper purpose.
Good faith and proper purpose
Pursuing a reasonable suspicion of breach of duty is a proper purpose.[35] That is Mr Coates' stated purpose.
[35] McNeill v Hearing & Balance Centre Pty Ltd [2007] NSWSC 942 [17] citing Barrack Mines Ltd v Grants Patch Mining Ltd (1988) 6 ACLC 97 and the judgment on the unsuccessful appeal: Barrack Mines Ltd v Grants Patch Mining Ltd (No 2) [1988] 1 Qd R 606 (Full Court).
Mr Coates explains in some detail his concerns as to particular transactions. His suspicion is particularly enlivened by reason of what he describes as a 'high rate of cash outflow experienced by [Classic Minerals] in its first few months on the ASX'.[36]
[36] Affidavit of Sheldon Philip Coates sworn 8 June 2016 [16] ‑ [20].
After having considered all of the evidence, the transactions described by Mr Coates, including the affidavit of Mr Doutch, I find that the concerns raised by Mr Coates are 'substantive and not fanciful', nor are they 'artificial, spurious or contrived'.[37]
[37] Re Style Ltd; Merim Pty Ltd v Style Ltd [2009] FCA 314; (2009) 255 ALR 63 [66] ‑ [67].
Simple disgruntlement with the management of a corporation is not sufficient as a proper purpose.[38] However, on the evidence before me, I find that Mr Coates' concerns are more than simple disgruntlement with the management of Classic Minerals.
[38] Biala Pty Ltd v Mallina Holdings Pty Ltd [1990] WAR 371.
In considering the application made by Mr Coates, I do not need to determine whether there has in fact been any impropriety or irregularity. Rather, the task is to determine whether there is an appropriate 'case for inspection'.[39] Having regard to all of the evidence, I find that there is a case for inspection.
[39]See the discussion in C Mantziaris, 'The member's right to inspect the company books: Corporations Act, s 247A' (2009) 83 ALJ 621, 629.
Previous access via consultancy engagement
In the Doutch Affidavit, Mr Justin Doutch states as follows:
I do not know why Sheldon Coates has commenced these proceedings against Classic Minerals. During the time that he was a consultant for the company he had unlimited access to the books and records of the company and would effectively work on a full-time basis from the company's offices. At that time he was an integral part of the management team of the company and was able to and did discuss matters openly with myself and other directors and consultants of the company. At no time has the company sought to exclude Sheldon Coates from its books and records [5].
Class Minerals says that Mr Coates has for a considerable time had full details of the vast majority of the transactions that now ground his application.
Consistent with the approach adopted by Hammerschlag J in McNeill v Hearing & Balance Centre,[40] I find that s 247A(1) requires an applicant to be acting in good faith and for a proper purpose. I also agree with Hammerschlag J that there is no principle which stands in the way of an applicant on the basis that the applicant may have had enough information at an earlier point in time to make a decision on a course it may wish to take. It is not the law that because an applicant may have the means of obtaining information elsewhere, the applicant is not acting in good faith, or seeking inspection otherwise than for a proper purpose.
[40] McNeill v Hearing & Balance Centre [23] ‑ [25].
The fact that Mr Coates may or may not have had the means through his previous consultancy engagement to obtain information is not a good reason why inspection should not now be afforded to him.
In any event, Mr Coates denies that he had unlimited access to the books and records of the company.[41]
[41] Mr Coates' evidence is that the only time he inspected the books and records of Classic Minerals was in or around June 2014 when he, in the company of another, inspected the books to establish the amounts claimable for research and development. Mr Coates says that when he was working in the Classic Minerals office, he was predominantly doing work on drilling programs and drill results and did not review the company's books and records as part of his job. See the affidavit of Sheldon Philip Coates sworn 29 August 2016 [20].
Even if there was a principle which stood in the way of Mr Coates (namely, that he may have had enough information at an earlier point in time), I would not be minded to refuse the application on that basis, given Mr Coates' strong denial.
Previous access via shareholder meetings
Mr Coates had the opportunity to attend shareholder meetings of Classic Minerals and raise any queries that he may have regarding the various transactions. There is also evidence that Mr Coates attended shareholder meetings and raised questions.[42] Applying the same reasoning as above, this does not mean that Mr Coates is not acting in good faith, or seeking inspection otherwise than for a proper purpose.
[42] Affidavit of Justin Doutch sworn 10 August 2016 [9], [13].
Role of auditors
Classic Minerals say that all of the transactions which concern Mr Coates were considered by the auditors of Classic Minerals and a number of the transactions have been voted on by the shareholders of Classic Minerals. The company suggests that the fact of the audit is a matter relevant to the determination of the application. In the circumstances of this case, in particular given the nature of the concerns raised by Mr Coates, I find that the fact that there was an audit not to be a good reason why inspection should not now be afforded to Mr Coates.
Determination
In all of the circumstances, and having applied the principles recently summarised in Mesa Minerals Ltd v Mighty River International Ltd, I am satisfied that the application is made in good faith and for a proper purpose.
Being so satisfied, a further issue arises as to whether the terms of access proposed by Mr Coates (set out in Schedule A below), are appropriate.
Despite the proposed terms of access having been filed in these proceedings on 29 June 2016 and served on the defendant on or about that time, I was informed by counsel that there has been no conferral as to its terms.
The terms of access ought to be narrowed in some parts and Schedule A amended to reflect that the books to be inspected are those books that bear on and are relevant to the purpose for which inspection is sought. For example, in light of the evidence, [1.4.9] of Schedule A should be amended so that inspection is limited to the books of Classic Minerals which relate to the commission payments made to Jett Holdings.
I will hear from the parties as to the appropriate form of order.
Schedule A
1.All documents, including any correspondence, bank statements, invoices, receipts, purchase orders, wage slips, agreements, file notes, accounting information and other relevant documents between 1 May 2013 to date that relate to or evidence:
1.1the related party transactions referred to in the affidavit of Sheldon Philip Coates sworn 8 June 2016 (Coates Affidavit);
1.2the related party loans to or from the defendant referred to the Coates Affidavit;
1.3the transactions under the title 'Uncommercial Transactions' title to in the Coates Affidavit;
1.4payments to or from:
1.4.1a member of the Doutch family;
1.4.2James Passaris;
1.4.3Guide Resources Pty Ltd;
1.4.4Aneles Consulting Services Pty Ltd;
1.4.5Namija Pty Ltd;
1.4.6Denarda Holdings Pty Ltd;
1.4.7Mining Corporate Pty Ltd;
1.4.8Nex Metals Explorations Pty Ltd; and
1.4.9Jett Holdings Pty Ltd.
2.All documents recording or evidencing payments to or for the benefit of the directors of the defendant or their family members in the period from 1 May 2013 to date.
3.Without limiting the request in order 1, the following documents:
3.1The Tenement Sourcing Agreement between the defendant and Guide Resources Pty Ltd;
3.2The consultancy agreement between the defendant and Aneles Consulting Services Pty Ltd;
3.3The agreement between the defendant and Namija Pty Ltd for the provision of services by Namija Pty Ltd;
3.4The agreement between the defendant and Mining Corporate Pty Ltd for the provision of services by Mining Corporate Pty Ltd;
3.5The identity of the three shareholders who have loaned funds to the defendant amounting to $857,704 and any loan agreements;
3.6Loan agreements between the defendant and John Doutch, Mr Passaris, Samantha Doutch, Nex Metals Exploration Pty Ltd and other directors and/or related entities;
3.7Rental agreement between the defendant and Kimberley Doutch;
3.8Rental agreement between the defendant and Rhianna Doutch;
3.9Employment contract between the defendant and Jacob Doutch.
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