Hanks v Admiralty Resources NL

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FEDERAL COURT OF AUSTRALIA

Hanks v Admiralty Resources NL [2011] FCA 891

Citation: Hanks v Admiralty Resources NL [2011] FCA 891
Parties: DAVID JOHN HANKS v ADMIRALTY RESOURCES NL (ACN 010 195 972)
File number: VID 606 of 2011
Judge: GORDON J
Date of judgment: 8 August 2011
Catchwords: CORPORATIONS – inspection of company books by member – share sale agreement – good faith – proper purpose – case for investigation
Legislation: Corporations Act 2001 (Cth) s 247A
Cases cited: Acehill Investments Pty Ltd v Incitec Ltd [2002] SASC 344
Barrack Mines Ltd v Grants Patch Mining Ltd (1987) 12 ACLR 357
Barrack Mines Ltd v Grants Patch Mining Ltd (No 2) [1988] 1 Qd R 606
Cescastle Pty Ltd v Renak Holdings Ltd (1991) 6 ACSR 115
Intercapital Holdings Ltd v MEH Ltd (1988) 13 ACLR 595
London City Equities Ltd v Penrice Soda Holdings Ltd [2011] FCA 674
McNeill v Hearing & Balance [2007] NSWSC 942
Praetorin Pty Ltd v TZ Ltd (2009) 76 ACSR 236
Quinlan v Vital Technology Australia Limited (1987) 5 ACLC 389
Style Ltd; Merim Pty Ltd v Style Ltd, Re (2009) 255 ALR 63
Yara Australia Pty Ltd v Burrup Holdings Ltd (2010) 80 ACSR 641
Date of hearing: 5 August 2011
Date of last submissions: 5 August 2011
Place: Melbourne
Division: GENERAL DIVISION
Category: Catchwords
Number of paragraphs: 46
Counsel for the Plaintiff: Ms L Nichols
Solicitor for the Plaintiff: Slater & Gordon
Counsel for the Defendant: Mr M Wyles SC with Mr E Moon
Solicitor for the Defendant: Hall & Wilcox

IN THE FEDERAL COURT OF AUSTRALIA

VICTORIA DISTRICT REGISTRY

GENERAL DIVISION

VID 606 of 2011
BETWEEN:

DAVID JOHN HANKS
Plaintiff
AND: ADMIRALTY RESOURCES NL (ACN 010 195 972)
Defendant

JUDGE:

GORDON J

DATE OF ORDER:

8 AUGUST 2011

WHERE MADE:

MELBOURNE

THE COURT ORDERS THAT:

1.The plaintiff and his solicitors are authorised to inspect the books of the defendant described in Annexure A in these Orders.

2.The plaintiff is not to communicate or disclose information obtained as a result of the inspection to any persons except:

2.1The plaintiff’s legal advisers; and

2.2Such other persons necessary to enable the plaintiff to determine whether to apply for leave pursuant to s 237 of the Corporations Act 2001 (Cth).

3.The defendant pay the plaintiff’s costs, such costs to be taxed in default of agreement.

Note:Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.


ANNEXURE A

In relation to the sale by the defendant of its controlled entity, Sociedad Contractual Minera Vallenor Company (VIC), to Icarus Derivatives Ltd (Icarus):

1.Exhibits SCP-3 and SCP-7 to the affidavit of Steven Charles Prior sworn 29 July 2011 and exhibits SCP-18 to SCP-22 (inclusive) to the affidavit of Steven Charles Prior sworn 2 August 2011.

2.The advice by Icarus that it expects to have access to sufficient financing to fund the full development of the mineral concessions held by VIC within a year to 18 months as…

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Details
Case
[2011] FCA 891
Decision Date

CaseChat Overview and Summary

In the matter of Hanks v Admiralty Resources NL, the plaintiff, Mr Hanks, sought an order under section 247A of the Corporations Act 2001 (Cth) permitting him to inspect specific books of Admiralty Resources NL, the defendant company. The central issue was whether Mr Hanks was acting in good faith and whether the inspection was for a proper purpose. The secondary issue was whether there were other reasons for the court to refuse the requested orders. Mr Hanks, a member of Admiralty, sought to inspect company books relating to the sale of a subsidiary, Sociedad Contractual Minera Vallenar Iron Company (VIC), to Icarus Derivatives Ltd, as well as related financial and strategic documents.

The court considered the statutory requirement under section 247A of the Corporations Act that an inspection order may only be made if the applicant is acting in good faith and the inspection is for a proper purpose. The court also had to determine whether there were other reasons to exercise its discretion against granting the orders. In examining Mr Hanks' request, the court assessed his motivations and the potential benefit to the company and its shareholders from the inspection. The court found that Mr Hanks had demonstrated a genuine interest in the company's affairs and that the inspection was intended to protect his investment, which aligned with the statutory requirements for a proper purpose.

Consequently, the court granted the orders sought by Mr Hanks, allowing him and his solicitors to inspect specified books of Admiralty. However, the court restricted the scope of the inspection to certain categories of books related to the sale of VIC and other relevant financial and strategic documents. The court also imposed conditions to prevent the disclosure of information obtained during the inspection, except to Mr Hanks' legal advisers or as necessary to determine whether to apply for leave under section 237 of the Corporations Act. The court ordered Admiralty to pay Mr Hanks' costs, which were to be taxed if the parties could not agree on the amount.

Orders

Orders of the court

1. The plaintiff and his solicitors are authorised to inspect the books of the defendant described in Annexure A in these Orders.

2. The plaintiff is not to communicate or disclose information obtained as a result of the inspection to any persons except:

2.1 The plaintiff’s legal advisers; and

2.2 Such other persons necessary to enable the plaintiff to determine whether to apply for leave pursuant to s 237 of the Corporations Act 2001 (Cth).

3. The defendant pay the plaintiff’s costs, such costs to be taxed in default of agreement.

Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

ANNEXURE A

In relation to the sale by the defendant of its controlled entity, Sociedad Contractual Minera Vallenor Company (VIC), to Icarus Derivatives Ltd (Icarus):

1. Exhibits SCP-3 and SCP-7 to the affidavit of Steven Charles Prior sworn 29 July 2011 and exhibits SCP-18 to SCP-22 (inclusive) to the affidavit of Steven Charles Prior sworn 2 August 2011.

2. The advice by Icarus that it expects to have access to sufficient financing to fund the full development of the mineral concessions held by VIC within a year to 18 months as described at page 8 of the Explanatory Memorandum accompanying the notice of meeting of the defendant dated 28 September 2010.

3. Documents recording whether Icarus did or would in fact have sufficient resources to fund the development of the mineral concessions held by VIC.

4. Documents recording whether the defendant considered disclosing the terms of the offer from Hebei Wenfeng Iron and Steel Co Ltd (HWF) of 18 October 2010 to the defendant’s shareholders and, if so, the facts and matters taken into account in that consideration.

5. Documents relied upon by the defendant’s directors to make:

5.1 the statement in the ASX Release by the defendant entitled “Investor Presentation – 2010 Annual General Meeting dated 20 November 2010” that the offer by HWF was “not a superior offer”; and / or

5.2 the statement recorded at item 2.1.4 of the minutes of the Extraordinary General Meeting of the defendant held on 29 October 2010 that “the Board has considered the offer and does not believe it is a superior offer”.

6. Policies of insurance and policy schedules relating to any insurance entered into by the defendant for the benefit of its directors and officers, for the period from May 2010 to November 2010.

Background

Background to the litigation

As is readily apparent, the issues for determination are:1.whether Mr Hanks is acting in good faith and that the inspection is to be made for a proper purpose;2.if yes to (1), whether there is any other reason why the Court should, in the exercise of its discretion, refuse to grant the orders sought by Mr Hanks.SUMMARY OF FACTS The transaction which lies at the heart of Mr Hanks’ concerns is the sale of Admiralty’s controlled entity, Sociedad Contractual Minera Vallenar Iron Company (VIC), to Icarus Derivatives Ltd (Icarus) and, in particular, the recommendation of the Admiralty directors to the Admiralty shareholders to vote for the sale without entertaining an offer, or disclosing the existence of an offer, from Hebei Wenfeng Iron and Steel Co Ltd (HWF). On 2 September 2010, Admiralty issued a news release stating that, subject to approval by its shareholders, it had entered into a share sale agreement to sell the whole of VIC to Icarus (the Share Sale Agreement). The news release stated that VIC’s main asset was a series of mining tenements in the Harper geological district in Chile. Icarus was described as “part of an international investment group specialising in opportunities in the resource sector generally”. The 2 September news release also stated that:Icarus will be entitled to a break fee of $US450,000 in circumstances where shareholders reject the transaction if a competing transaction which is more favourable to shareholders is proposed or announced prior to the meeting held to approve the transaction; …(the Break Fee). On 6 September 2010, Mr Hanks requested Admiralty to provide specific information about Icarus including management names, titles and full contact details. Admiralty responded on 8 September 2010 as follows:…Icarus Investments is a private company and as such details of its management/shareholders are not readily available. As you know, it is part of an investment group, of which the Company hasn’t disclosed further details so far. I understand your concern in relation to finding more information about the potential buyer of the tenements in the Northern Region and I can tell you that Dr Andrew Walker related to Icarus and with a public profile (sic). Dr Walker is involved in the Aspen Medical and the Wingate projects. You can find more information on these projects on the following links:Aspen Medical’s website is Aspen has won lots of awards and is currently the ANZ Private Business of the Year. In 2007, it was BRW’s #1 fastest growing Company.… Around 28 September 2010, Mr Hanks received notice of an Extraordinary General Meeting of Admiralty to be held on 29 October 2010 (the EGM). The sale of VIC to Icarus was on the agenda for the EGM. The EGM notice was accompanied by an Explanatory Memorandum (the EM). The EM explained that the Share Sale Agreement was entered into on 1 September 2010 with Icarus (a company incorporated in the British Virgin Islands) as purchaser and Corsair Capital Limited (a Hong Kong company) (Corsair), as guarantor. The purchase price was described in the EM as follows:In exchange for the shares in VIC and the transfer from Admiralty and Admiralty Chile to the purchaser of the remaining debt that VIC will owe them at Completion:(a)the Purchaser will assume responsibility for the repayment of US$4 million in debt owed by VIC to Admiralty, and will repay that amount in the following instalments:(i)US$1 million at Completion;(ii)US$1 million eight months after Completion;(iii)US$1 million sixteen months after Completion;(iv)US$1 million twenty-four months after Completion; and(b) the Purchaser will pay the Vendors US$10,000 at Completion.In addition, immediately before Completion, VIC will enter into a royalty agreement with Admiralty (Royalty Agreement), pursuant to which VIC will be required to pay Admiralty a royalty in respect of the iron ore fines extracted after Completion from any area covered by the Mineral Concessions [on certain terms and conditions]. In exchange for VIC’s commitment to pay this royalty, approximately US$29 million of the debt owed by VIC to Admiralty or Admiralty Chile will be taken to have been repaid.In the EM, Admiralty’s directors recommended the sale to Icarus as being in Admiralty’s best interests.

Evidence

Evidence Before The Court

Full text does not contain this section.

Decision

Reasons for decision

Full text does not contain this section.

Ratio Decidendi

Legal Principle Established

Pursuant to s 247A of the Corporations Act 2001 (Cth) (the Corporations Act), Mr Hanks seeks an order permitting him and his solicitor to inspect specified books of Admiralty. Mr Hanks also seeks an order, until further order, that he and his solicitor not communicate or disclose any information they obtain as a result of that inspection to any persons other than Mr Hanks’ legal advisers or such other persons necessary to enable the plaintiff to determine whether to apply for leave pursuant to s 237 of the Corporations Act. Admiralty opposes the application. Admiralty submits that, contrary to s 247A of the Corporations Act, Mr Hanks has failed to establish that (1) he is acting in good faith and (2) that there is a case for investigation or that he is seeking to protect some personal right. Further, Admiralty contends that there are other reasons why the Court should, in the exercise of its discretion, refuse to grant the orders sought by Mr Hanks. For the reasons that follow, I would make orders for inspection substantially in the form of the orders sought by Mr Hanks. However, I have reduced the categories of books that he will be entitled to inspect.LEGISLATION Section 247A of the Corporations Act provides:(1) On application by a member of a company …, 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. (2) A person authorised to inspect books may make copies of the books unless the Court orders otherwise. (3) A person who: (a) is granted leave under section 237; or …(c) is eligible to apply for leave under that section; may apply to the Court for an order under this section.(4) On application, the Court may make an order authorising: (a) the applicant to inspect books of the company; or (b) another person to inspect books of the company on the applicant’s behalf. (5) 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. (6) A person authorised to inspect books may make copies of the books unless the Court orders otherwise. There is no dispute that Mr Hanks is a member of Admiralty and that he is eligible to apply for leave to commence a proceeding under s 237 of the Corporations Act. As is readily apparent, the issues for determination are:1.whether Mr Hanks is acting in good faith and that the inspection is to be made for a proper purpose;2.if yes to (1), whether there is any other reason why the Court should, in the exercise of its discretion, refuse to grant the orders sought by Mr Hanks.SUMMARY OF FACTS