MCLEAN v D.I.D. Piling Pty Ltd - [2009] SASC 205

SUPREME COURT OF SOUTH AUSTRALIA
(Civil: Application)
MCLEAN v D.I.D. PILING PTY LTD
[2009] SASC 205
Reasons of Judge Lunn a Master of the Supreme Court
10 July 2009
CORPORATIONS
Application under s 247A of Corporations Act for minority shareholder to inspect books of defendant company - held plaintiff had not shown his dominant purpose was for valuing his shares for their sale by the Board of directors under a process laid down by the Articles but was also partly to assist him in deciding whether to institute an oppression action under s 233 of the Act - latter purpose not shown to be a proper purpose - application dismissed.

MCLEAN v D.I.D. PILING PTY LTD
[2009] SASC 205
Reasons on plaintiff’s application for inspection of records of the defendant.

JUDGE LUNN: The plaintiff’s application of 18 May 2009 is made under s 247A of the Corporations Act 2001 (“the Act”) which 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
(b)authorising another person (whether a member or not) to inspect books of the company ….. 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 relevant law on such applications is conveniently summarised by Debelle J in Acehill Investments Pty Ltd v Incitec Ltd (2002) 23 LSJS 97 at 105-6 as follows:
….. Those provisions also stated that a Court may only make an order for inspection if satisfied that the applicant is acting in good faith and that the inspection is sought for a proper purpose. Although not in the same terms as s 247A, those provisions were to the same effect so that the principles have equal application to the determination of applications under s 247A. They establish the following propositions relevant to the issues in this application.
1The 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: …..
2The onus is on the applicant to demonstrate that he is acting in good faith and that the inspection is for a proper purpose: …..
3The 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); ….. 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: ….. or where a shareholder seeks to ascertain facts for the purpose of considering a takeover offer: …..
4If the…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

Continue reading MCLEAN v D.I.D. Piling Pty Ltd

Details

AGLC: MCLEAN v D.I.D. Piling Pty Ltd [2009] SASC 205
Case: [2009] SASC 205
Decision Date: 10 July 2009

CaseChat Overview and Summary

In the matter of McLean v D.I.D. Piling Pty Ltd, the plaintiff sought to sell his shares in the defendant company, which was subject to specific conditions outlined in Article 27 of the company's Articles of Association. The dispute arose from the plaintiff's inability to comply with these conditions, which required him to notify the Board of his intention to transfer shares, and potentially sell them to the existing members at a price determined by the Board or an independent chartered accountant. The plaintiff faced difficulties in effecting the sale of his shares either under Article 27(a) or by pursuing an oppression action under the Corporations Act.

The primary legal issues before the court were whether the plaintiff could sell his shares outside the constraints of Article 27, and if so, whether the court should grant relief under the oppression provisions of the Corporations Act. The court had to determine if the plaintiff's options were limited to either following the prescribed process in Article 27(a) or pursuing an oppression action, and if the latter was viable, whether it would result in a fair value for the plaintiff's shares.

The court found that the plaintiff's options were indeed limited to the two aforementioned paths. If the plaintiff chose to follow Article 27(a), he would be bound by its terms and conditions, and potentially sell his shares at a price determined by the Board or an independent chartered accountant. Alternatively, if he pursued an oppression action, the court could order the purchase of his shares under s 233(1)(e) of the Corporations Act, with the purchase price being determined based on a fair value in all circumstances, potentially considering any oppressive conduct by the defendant. The court concluded that the plaintiff's best option was to proceed with the oppression action, as it offered the possibility of a higher recovery for his shares, though it also carried the risk of incurring substantial legal costs if the claim failed.

The court granted the plaintiff leave to commence an oppression action against the defendant, allowing the plaintiff to seek relief under the Corporations Act. The court emphasised that if the plaintiff failed to establish oppressive conduct, he would not be precluded from then proceeding under Article 27(a) but would likely be liable for legal costs. The court's decision provided the plaintiff with a viable path forward to sell his shares, balancing the potential benefits against the risks involved.

Orders

Orders of the court

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Background

Background to the litigation

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Evidence

Evidence Before The Court

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Decision

Reasons for decision

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Ratio Decidendi

Legal Principle Established

Article 27 of the defendant’s Articles of Association provides:27 Right to Refuse RegistrationThe Board may refuse to register a transfer of shares in the Company for any reason. The Board must refuse to register a transfer of shares in the Company unless the following provisions have been followed:(a)Any member wishing to transfer any shares in the Company must first give written notice to the Board that the member wishes to effect such transfer. Such notice constitutes the Board the member’s agent for the sale of such shares at a price to be agreed upon between the member giving notice and the Board or, in the case of difference, at a price determined by an independent chartered accountant appointed by the Board.(b)The Board is not bound to offer the shares to the existing members of the Company but may determine to whom such shares are to be offered and is entitled, if it so desires, to have the directors take up such shares themselves in any proportions agreed upon. In the event of disagreement as to such proportions then the decision of the chairman of the Board is final and binding and if there is no chairman then such shares are to be offered to the directors equally.(c)If the whole of the share to be transferred are not sold under the foregoing provisions of this clause, the member wishing to transfer the shares is entitled to transfer such shares to a person or persons of their choosing. The plaintiff has not given any notice under Article 27(a) that he wishes to effect a transfer of his shares. The defendant’s solicitors have advised the plaintiff that if he does give such a notice the existing shareholders wish to purchase his shares and have indicated an independent chartered accountant who will be appointed for the valuation of those shares if no agreement can be reached about their price. Thus, if he does give such a notice, it is certain his shares will be sold to the other present shareholders. There are only two possible ways in which the plaintiff could effect a sale of his shares. The first is pursuant to Article 27(a). If he gives a transfer notice under that Article, he will be locked into that process and, provided the due formalities are observed, he will only obtain, in the absence of an agreement, the price which is fixed by the independent chartered accountant. The other way in which the plaintiff could dispose of his shares is by bringing an oppression action under ss 232 and 233 of the Act and obtaining an order of the Court under s 233(1)(e) for the purchase of his shares. To succeed on this alternative, he must establish a cause of action for oppressive conduct against him under s 232 of the Act. If he qualifies for an order under s 233(1)(e), the Court has a discretion about how the purchase price is to be fixed which will represent a fair value for the shares in all the circumstances. That amount will not necessarily be the price fixed by ordinary principles of share valuation and it may take into account any acts of oppressive or discriminatory conduct found against the defendant: Smith Martis Cork Pty Ltd v Benjamin Corporation Pty Ltd (2004) 207 ALR 136 at [70-78]; Dynasty Pty Ltd v Coombs (1995) 138 ALR 64. Thus, if the plaintiff were to pursue the second option of an oppression action, he may recover more for his shares than if he proceeded under Article 27(a). However, if he fails to establish oppressive conduct, he will almost certainly be liable for substantial legal costs, but he would not be precluded from then proceeding under Article 27(a).