Majestic Resources NL v Caveat Pty Ltd
[2004] WASCA 201
•3 SEPTEMBER 2004
MAJESTIC RESOURCES NL -v- CAVEAT PTY LTD & ORS [2004] WASCA 201
| SUPREME COURT OF WESTERN AUSTRALIA | Citation No: | [2004] WASCA 201 | |
| THE FULL COURT (WA) | 03/09/2004 | ||
| Case No: | FUL:172/2002 | 2 APRIL 2004 | |
| Coram: | MALCOLM CJ TEMPLEMAN J WHEELER J | 2/04/04 | |
| 13 | Judgment Part: | 1 of 1 | |
| Result: | Appeal allowed | ||
| B | |||
| PDF Version |
| Parties: | MAJESTIC RESOURCES NL (ACN 16 050 541 332) CAVEAT PTY LTD (ACN 008 990752) JOHN ALLEN BAILLIE CHARLES PHILIP MOSTERT PAUL GERARD MAZAK ROBERT WILDE ROBERT WILTSHIRE BELL MANFRED RICHARD MARX |
Catchwords: | Company law Application by member of company to inspect "books of the company" Whether scope of inspection a relevant consideration in exercise of discretion |
Legislation: | Corporations Act 2001 (Cth), s 237, s 247A |
Case References: | Acehill Investments Pty Ltd v Incitec Ltd [2002] SASC 244 Farrell v Alexander [1977] AC 59 Purdon v Dittmar [1972] 1 NSWLR 94 Re Claremont Petroleum NL (No 2) (1990) 2 ACSR 84 Steward v Normandy NFM Ltd (2000) 18 ACLC 814 United Rural Enterprises Pty Ltd v Lopmand Pty Ltd [2003] 45 ACSR 271 United Rural Enterprises Pty Ltd v Lopmand Pty Ltd [2003] NSWSC 404 |
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA TITLE OF COURT : THE FULL COURT (WA) CITATION : MAJESTIC RESOURCES NL -v- CAVEAT PTY LTD & ORS [2004] WASCA 201 CORAM : MALCOLM CJ
- TEMPLEMAN J
WHEELER J
- Appellant (Seventh Defendant)
AND
CAVEAT PTY LTD (ACN 008 990752)
First Respondent (Plaintiff)
JOHN ALLEN BAILLIE
Second Respondent (First Defendant)
CHARLES PHILIP MOSTERT
Third Respondent (Second Defendant)
PAUL GERARD MAZAK
Fourth Respondent (Third Defendant)
ROBERT WILDE
Fifth Respondent (Fourth Defendant)
ROBERT WILTSHIRE BELL
Sixth Respondent (Fifth Defendant)
(Page 2)
MANFRED RICHARD MARX
Seventh Respondent (Sixth Defendant)
ON APPEAL FROM:
Jurisdiction : SUPREME COURT OF WESTERN AUSTRALIA
Coram : SANDERSON M
Citation Number : [2002] WASC 83
File Number : COR 14 of 2002
Catchwords:
Company law - Application by member of company to inspect "books of the company" - Whether scope of inspection a relevant consideration in exercise of discretion
Legislation:
Corporations Act 2001 (Cth), s 237, s 247A
Result:
Appeal allowed
Category: B
(Page 3)
Representation:
Counsel:
Appellant (Seventh Defendant) : Mr M L Bennett
First Respondent (Plaintiff) : Mr A R Beech
Second Respondent (First Defendant) : Ms P M Tantiprasut
Third Respondent (Second Defendant) : Ms P M Tantiprasut
Fourth Respondent (Third Defendant) : Ms P M Tantiprasut
Fifth Respondent (Fourth Defendant) : Mr C W Lockhart
Sixth Respondent (Fifth Defendant) : Mr C W Lockhart
Seventh Respondent (Sixth Defendant) : Ms P M Tantiprasut
Solicitors:
Appellant (Seventh Defendant) : Fearis Salter Power Shervington
First Respondent (Plaintiff) : Tottle Partners
Second Respondent (First Defendant) : Fairweather & Lemonis
Third Respondent (Second Defendant) : Fairweather & Lemonis
Fourth Respondent (Third Defendant) : Fairweather & Lemonis
Fifth Respondent (Fourth Defendant) : Pullinger Readhead Stewart
Sixth Respondent (Fifth Defendant) : Pullinger Readhead Stewart
Seventh Respondent (Sixth Defendant) : Fairweather & Lemonis
Case(s) referred to in judgment(s):
Acehill Investments Pty Ltd v Incitec Ltd [2002] SASC 244
Case(s) also cited:
Farrell v Alexander [1977] AC 59
Purdon v Dittmar [1972] 1 NSWLR 94
Re Claremont Petroleum NL (No 2) (1990) 2 ACSR 84
Steward v Normandy NFM Ltd (2000) 18 ACLC 814
United Rural Enterprises Pty Ltd v Lopmand Pty Ltd [2003] 45 ACSR 271
United Rural Enterprises Pty Ltd v Lopmand Pty Ltd [2003] NSWSC 404
(Page 4)
1 MALCOLM CJ: On 19 April 2004, at the conclusion of this appeal, the Court ordered that this appeal be allowed; the order of Master Sanderson dated 26 November 2002 be set aside and the first respondent's application be referred back to the Master; the first respondent pay the appellant's costs of the appeal to be taxed; the learned Master's previous orders for costs be set aside; there be a certificate under the Suitors Fund Act in favour of the first respondent; the first respondent pay the fifth and sixth respondents' costs of the appeal to be taxed, and that there be no further order as to costs.
2 I have had the advantage of reading in draft the reasons to be published by Templeman J for dismissing the appeal. I agree with those reasons and have nothing to add.
3 TEMPLEMAN J: This appeal from a Master raises a short point of construction arising from s 247A of the Corporations Act 2001 (Cth). That section empowers the Court, on the application by a member of a company, to make an order authorising the applicant to inspect "books of the company".
4 The question arising in this appeal is whether, when making an order of that kind, the Court has power to limit the scope of any such inspection. The learned Master said he was not convinced that the Court had any such power. The appellant, being the company against which the order was made, contends that the Master was wrong and that his erroneous interpretation of s 247A tainted the way in which he exercised his discretion to order inspection.
5 At the conclusion of the hearing of the appeal, the Court ordered that the Master's order be set aside and that the application be referred back to him. I now set out my reasons for joining in that decision.
6 The first respondent, Caveat Pty Ltd ("Caveat") is a shareholder in the appellant, Majestic Resources NL ("the Company").
7 Caveat was concerned about a number of diverse transactions involving the Company which had resulted in the Company sustaining substantial financial losses. The Company's share price had fallen from 33 cents to 10 cents in a relatively short period.
8 Caveat believed that some or all of the responsible directors of the Company may have been influenced in the relevant transactions by interests in other entities. In short, Caveat was concerned that the
(Page 5)
- deterioration in the Company's financial position may have resulted from breaches of the Corporations law by the relevant directors.
9 One of the directors and shareholders of Caveat, Dr Robert John Russell, requested information from the Company about the various transactions which had given him cause for concern. The Company declined to provide the information. Being unable to obtain satisfaction in that way, Caveat brought an application to the Master, pursuant to s 237 and s 247A of the Corporations Act by which it sought leave to commence proceedings in the Company's name against the directors and former directors involved in the relevant transactions. Caveat also sought leave to "inspect the books and records of the defendants".
10 The application was supported by an affidavit sworn by Dr Russell in which he summarised the various transactions of concern to him and to Caveat, and to which he exhibited a considerable volume of material. The application was supported also by an affidavit of Caveat's solicitor.
11 The application was opposed. Affidavits were filed by or on behalf of the Company by some of its directors and a major shareholder. A substantial theme in the opposing affidavits was that in causing Caveat to institute the proceedings, Dr Russell was acting in bad faith or for an improper purpose.
12 The application came before the Master on 27 March 2002. On 17 April, the Master delivered reasons in which he expressed himself to be satisfied that the application had been brought in good faith and for a proper purpose. The Master said he would make an order allowing inspection under s 247A and would hear further submissions as to the form of the order and as to costs.
13 In his reasons, the Master set out s 247A, which is in the following terms:
"247A(1) [Court's power] 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.
(Page 6)
- 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.
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 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 books of the company; or
(b) another person to inspect books of the company on the applicant's behalf.
247A(5) [When the 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] A person authorised to inspect books may make copies of the books unless the Court orders otherwise."
14 The Master went on to note that an applicant for an order under s 247A must satisfy the Court that he falls within one of the subcategories of subsection (3). The Master said that because Caveat had applied for
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- leave to bring proceedings under s 237, it satisfied the requirement of s 247A(3)(b). The Master then set out s 237, which is in the following terms:
"237(1) [Seeking leave to proceed or intervene] A person referred to in paragraph 236(1)(a) may apply to the Court for leave to bring, or to intervene in, proceedings.
237(2) [When application must be granted] 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; and
(c) it is in the best interests of the company that the applicant be granted leave; and
(d) if the applicant is applying for leave to bring 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.
237(3) [Presumption] A rebuttable presumption that granting leave is not in the best interests of the company arises if it is established that:
(a) the proceedings are:
(i) by the company against a third party; or
(ii) by a third party against the company; and
(b) the company has decided:
(Page 8)
- (i) not to bring the proceedings; or
(ii) not to defend the proceedings; or
(iii) to discontinue, settle or compromise the proceedings; and
- (c) all of the directors who participated in that decision:
(i) acted in good faith for a proper purpose; and
(ii) did not have a material personal interest in the decision; and
(iii) informed themselves about the subject matter of the decision to the extent they reasonably believed to be appropriate; and
(iv) rationally believed that the decision was in the best interests of the company.
The director's belief that the decision was in the best interests of the company is a rational one unless the belief is one that no reasonable person in their position would hold.
237(4) [Interpretation] For the purposes of subsection (3):
(a) a person is a third party if:
(i) the company is a public company and the person is not a related party of the company; or
(ii) the company is not a public company and the person would not be a related party of the company if the company were a public company; and
(b) proceedings by or against the company include any appeal from a decision made in proceedings by or against the company."
15 After dealing with various questions of admissibility of the evidence relating to the application, the Master set out the principles upon which an application brought pursuant to s 247A should be determined. The Master
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- focussed, in particular, on the requirement that the application be made in good faith.
16 The Master concluded this section of his reasons in the following way:
"Although s 237 and s 247A stand alone they are interrelated. An application might be made under s 237 without a party first seeking an order to inspect the companies books under s 247A. Equally, a party may apply under s 247A before issuing any proceedings under s 237 and after inspecting the books, may decide not to proceed further. Given the separate and distinct nature of the two sections, I think it is proper to approach an application under s 247A without regard to s 237. That may mean that matters that are canvassed on the s 247A application are dealt with again when and if an application is made under s 237. While that may be unfortunate and inconvenient, it is an inevitable consequence of the way the legislation is structured. In my view it would be unreasonable to limit the scope of a good faith enquiry under s 247A just because proceedings have already been issued under s 237."
17 The Master then turned to the facts, which, having regard to the way the appeal was argued, it is not now necessary to recite. It is sufficient to note the Company's submission that the evidence justified five contentions which, it was said, when taken together, showed that Caveat had failed to establish it was acting in good faith and for a proper purpose. In summary, these contentions were as follows:
(a) while the Company's affairs were conducted under the chairmanship of the fifth respondent, he had been supported by Dr Russell who had never complained about his stewardship and had been concerned about his departure from the Board;
(b) Dr Russell's motivation was explained by his unsuccessful attempts to join the new Board of the Company;
(c) Dr Russell had rejected the Company's open proposals to meet and discuss with its directors any issues he might wish to raise and to appoint a senior counsel to investigate any potential claims;
(d) Dr Russell had rejected attempts by the Company to define the scope of the documentary material which might be
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- produced, the Company having offered to permit investigation of certain classes of documents albeit on the basis that they would not be produced to Dr Russell himself;
- (e) there was an inconsistency between Caveat's expressed intention of seeking redress on behalf of the Company and its wish to divest itself of its interest in the Company.
18 Having considered the evidence relating to these matters, the Master said he was satisfied that the application had been brought in good faith and for a proper purpose. In reaching that conclusion, the Master referred to the extensive list of the documents Caveat sought to inspect. The Master said:
"During the course of his submissions counsel for the plaintiff [Caveat] produced document titled 'List of Documents Sought by the Plaintiff Pursuant to Section 247A of the Corporations Act.' This list is extensive and covers a wide range of documents, many of which have not been mentioned in the correspondence. Counsel for the seventh defendant [the Company] submitted that the sheer width of the list was itself an indication of a lack of good faith. It was said that to seek production of such a wide range of documents was evidence that the plaintiff was fishing.
Perhaps surprisingly, s 247A does not give to the Court the power to limit what books of the company are to be available for inspection if an application is successful. Section 247A(1)(a) allows the Court to make an order authorising the applicant to inspect 'books of the company'. The definition of 'books' in s 9 is said to include (but presumably not limited to) 'any … record of information' and 'financial reports or financial records, however compiled, recorded or stored' and documents. Section 247B of the Act covers ancillary orders and allows the Court to limit the use that a person who inspects the books may make of the information obtained during the inspection and limiting the right of a person who inspects the books to make copies. But there is no express power to limit the books that may be inspected. This stands in contrast to the provisions of s 265B of the Corporations (Western Australia) Code. Under s 265B(1)(c) the Court could authorise inspection of 'such of the books of the company as are specified in the order'. The fact that that provision has been removed suggests that the
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- legislature intended that once an order was made for inspection of the books it should be open-ended.
Because the list of documents was produced by counsel for the plaintiff only during the course of his submissions, I reserved to counsel for the seventh defendant the right, if I made an order authorising inspection of the books, to make submissions as to the extent of that order. I will, of course, afford counsel that opportunity. However, I am by no means convinced that I have power to limit the scope of the inspection. That being the case, I cannot see that the fact that the plaintiff seeks access to a wide range of books as being a factor which could show a lack of good faith."
19 With all respect to the Master, I am unable to accept a construction of s 247A which would deny the Court the power to limit the scope of any inspection ordered under that section. As counsel for the appellant pointed out, if the Court made an order for inspection under s 247A(4) in relation to a large company, but had no power to limit the scope of that inspection, the applicant would be able to inspect every one of the company's books and records. This would permit the applicant to intrude into every aspect of the company's operations and might result in the disclosure of all manner of confidential information such as that relating to the company's employees and its commercial dealings.
20 In my view, it is significant that, pursuant to s 247A, the Court may make an order authorising the applicant to inspect "books of the company". The section does not authorise inspection of "the books of the company".
21 Furthermore, in considering whether to make an order under s 247A, the Court is required to exercise a discretion. By s 247A(4) "the court may make an order authorising … the applicant to inspect books of the company …". In my view, the exercise of the discretion requires the Court to consider not only whether it is appropriate to make an order for inspection but also to consider which of the books of the company should be made available for that purpose. That was the course followed by Debelle J in Acehill Investments Pty Ltd v Incitec Ltd [2002] SASC 244. Dealing with an application of this kind, Debelle J said:
"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
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- 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."
- His Honour went on to deal with certain aspects of the application which led him to the conclusion that the applicant had satisfied the requirements of s 247A. His Honour continued:
"I am further satisfied that in the exercise of my discretion I should make an order authorising inspection of certain books and documents of (the company) by identified persons."
His Honour then turned to consider issues arising from "the wide-ranging nature of the documents of which inspection was sought" and the fact that the applicant had applied for eight persons, including three of its executives, to conduct the inspection.
22 In the result, the applicant responded to his Honour's concerns by reducing the scope of the application. His Honour then made orders for a limited number of documents to be inspected by nominated persons, including the applicant's solicitor.
23 In the present case, Caveat did not seek inspection of all of the Company's books and records: and, despite his view as to the width of s 247A the Master did not order that all such books and records be made available for inspection.
24 The point of the appeal is this: in exercising his discretion under s 247A, the Master left out of account the fact that Caveat was seeking a wide-ranging inspection of the Company's books. The Master believed that was an irrelevant consideration, because of his view that a successful applicant would be entitled to inspect all the books and records of the subject company, the Court having no power to narrow or restrict that inspection.
25 In my view, however, for the reasons set out above, the width of inspection sought by Caveat was a relevant consideration and should have been taken into account by the Master in the exercise of his discretion.
26 On the hearing of the appeal, Caveat invited the Court to exercise the discretion afresh. The Court clearly has power to take that course. That is because, by O 63 r 2(1) of the Rules of the Supreme Court, all appeals to the Full Court whether from a Judge or a Master, are by way of rehearing.
(Page 13)
- However, the Court declined to follow that course in the present case and remitted the matter back to the Master for further consideration. My reasons were for concluding that that was the appropriate course, were, essentially, twofold.
27 First, we do not know what weight was given by the Master to the various factors he took into account in exercising his discretion to make an order under s 247A. That being so, it is impossible to say to what extent (if at all) the Master's decision would have been influenced by the width of the orders sought, had the Master taken that into account.
28 Secondly, it is significant that the Master's decision was delivered on 17 April 2002, almost two years ago. We were told that the Company's circumstances, including the composition of its Board and its financial position, are now significantly different. The respondents wish to adduce further evidence relating to these matters. The Court could, of course, receive the evidence and conduct what would be, in effect, a new hearing. However, in my view, it is much more appropriate that matters of this kind be heard by the Masters. While this application is no doubt a matter of considerable importance to the parties, it is not, in my view, a matter which warrants the allocation of the judicial resources involved in rehearing the matter in the Full Court.
29 WHEELER J: I have had the advantage of reading in draft the reasons for decision of Templeman J. I agree with those reasons and have nothing to add.
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