Navarac Pty Ltd v Carrello

[2016] WASC 327

JURISDICTION     :   SUPREME COURT OF WESTERN AUSTRALIA

IN CHAMBERS

CITATION:   NAVARAC PTY LTD -v- CARRELLO [2016] WASC 327

CORAM:   MARTIN CJ

HEARD:   ON THE PAPERS

DELIVERED          :   11 OCTOBER 2016

FILE NO/S:   CIV 1409 of 2016

BETWEEN:   NAVARAC PTY LTD

Plaintiff

AND

GIOVANNI MAURIZIO CARRELLO AS THE RECEIVER AND MANAGER OF ESPERANCE CATTLE COMPANY PTY LTD (RECEIVER AND MANAGER APPOINTED)
First Defendant

ANN DEBORAH CATHCART
Second Defendant

ESPERANCE CATTLE COMPANY PTY LTD (RECEIVER AND MANAGERS APPOINTED) 
Third Defendant

FOX & LILLIE RURAL PTY LTD
Fourth Defendant

Catchwords:

Application by company director for inspection of documents in possession of receiver - Sources of right to inspection - Effect of appointment of receiver on director's right to inspection - Turns on own facts

Legislation:

Corporations Act 2001 (Cth)

Result:

Application allowed in part
Costs of the application reserved

Category:    B

Representation:

Counsel:

Plaintiff:     No appearance

First Defendant              :     Mr K L Christensen

Second Defendant         :     In person

Third Defendant            :     Mr C Lilley

Fourth Defendant           :     No appearance

Solicitors:

Plaintiff:     No appearance

First Defendant              :     Gadens Lawyers

Second Defendant         :     In person

Third Defendant            :     Dorsia Legal

Fourth Defendant           :     No appearance

Case(s) referred to in judgment(s):

Boulos v Carter; Re TARBS World TV Australia Pty Ltd [2005] NSWSC 891

Re Geneva Finance Ltd; Quigley v Cook & Ors (1992) 7 WAR 496

MARTIN CJ: 

The context

1. The first defendant, Mr Giovanni Carrello (the receiver) was appointed by the court to be the receiver and manager of Esperance Cattle Company Pty Ltd (the Company) in order to undertake the prompt sale of potentially deteriorating assets (livestock) owned by the Company.  Mr Carrello considers that he has discharged the responsibilities of his appointment and wishes to retire and pay the net balance of the proceeds of realisation of the Company's assets into court, to be distributed in accordance with the orders of the court.  To that end, he has applied for various orders finalising the receivership.  Various parties have indicated an intention to resist the orders sought by the receiver.  On 13 September 2016 I listed the receiver's application for hearing on 10 November 2016, and made various procedural directions relating to the exchange of evidence and submissions in advance of that hearing.

The request for disclosure

1. The second defendant, Ms Ann Cathcart, is a director of the Company.  She also asserts that she is the managing controller and a secured creditor of the Company.  On the evening before the hearing on 13 September 2016, Ms Cathcart sent an email to the receiver's solicitors requesting inspection of 17 categories of documents which she asserted were or might be held by the receiver.  During the hearing on 13 September 2016, she asserted that she required inspection of documents falling within the categories she had identified for the purposes of preparing the evidence and submissions she proposed to serve in opposition to the receiver's application for orders finalising the receivership.  Counsel for the receiver articulated the view that the information sought was an 'overkill' in an application of this nature (referring to the receiver's application for orders finalising the receivership), and that accordingly, any application for orders requiring the receiver to provide further inspection of documents would be opposed.  I advised the parties that I would treat the email which Ms Cathcart had sent to the receiver's solicitors as an application for orders requiring the receiver to provide inspection of the documents falling within the categories identified in that email, and made directions for the exchange and service of submissions by the receiver and Ms Cathcart in relation to that application.  I also directed that I would determine that application on the papers without a further hearing.

The submissions and affidavits

1. Pursuant to my directions the receiver and Ms Cathcart have filed and served submissions.  Ms Cathcart has also filed and served two affidavits in support of her application.  The receiver objects to those affidavits on various grounds.  It is not necessary for me to rule upon the specific grounds of objection raised by the receiver because I am satisfied that the assertions made in the affidavits and the documents annexed to them are not relevant to the matters which I am required to resolve with respect to Ms Cathcart's application for inspection of documents.  It is neither necessary nor appropriate to determine at this stage whether the affidavits or some part of them might be admissible and relevant to other issues in these proceedings.

2. A significant portion of the submissions provided by Ms Cathcart are also irrelevant to her application for inspection.  Further, those submissions do not identify the precise basis upon which Ms Cathcart asserts an entitlement to inspection.  The deficiencies in the submissions provided by Ms Cathcart are not surprising as she is not legally represented and I am prepared to make appropriate allowances for that fact.

3. The submissions filed and served by Ms Cathcart also request categories of documents beyond the categories of documents specified in her email to the receiver's solicitors of 12 September 2016.  However, in his submissions in reply, the receiver takes no issue with respect to the enlargement of the categories sought and responds to the additional categories identified in Ms Cathcart's submissions.  I will therefore deal with the matter as an application for inspection of documents within the categories specified in Ms Cathcart's submissions. 

4. The receiver filed and served submissions contemporaneously with Ms Cathcart.  He subsequently filed and served submissions in reply to Ms Cathcart's submissions and affidavits.  In those submissions, the receiver took the position that he had already provided Ms Cathcart with all the documents to which she is entitled.

The possible sources of a right to inspection

1. As I have noted, Ms Cathcart is not legally represented and has not identified with precision the source or sources of her claimed entitlement to inspection of documents in the possession of the receiver.  It is appropriate for me to identify the possible sources of such an entitlement, which are to be found in both the Corporations Act 2001 (Cth) (the Act) and at common law.

Section 198F

1. Section 198F of the Act provides, relevantly to this case, that a director of a company may inspect the books of the company (other than its financial records) at all reasonable times for the purposes of a legal proceeding to which the director is a party.  Ms Cathcart is obviously a party to these proceedings, and although she does not expressly assert that she seeks inspection of the documents she has identified for the purpose of these proceedings, an inference to that effect arises fairly from the circumstances in which the request was made and the nature of the documents requested.  That inference is further supported by the general tenor of the submissions filed by Ms Cathcart, which are to the effect that she seeks inspection of the documents in order to investigate and pursue claims against the receiver and upon which she will rely in opposition to the orders sought by the receiver finalising the receivership and absolving him from any potential further liability.

2. Accordingly, if the categories of documents identified by Ms Cathcart are potentially relevant to the issues likely to be addressed in the proceedings for finalisation of the receivership, s 198F of the Act is an available source of Ms Cathcart's claimed entitlement to inspection of those documents.  However, it is of some significance to note that the entitlement does not extend to 'financial records' of the company.

Section 290

1. Section 290 of the Act provides that a director of a company has a right of access to the financial records of that company at all reasonable times.  So, this potential source of Ms Cathcart's right of inspection complements the rights conferred by s 198F, and those two sections in combination confer a right to inspect both the books of the Company potentially relevant to these proceedings, and its financial records.

Section 421

1. Section 421 of the Act provides a further potential source of the right of inspection claimed by Ms Cathcart.  Relevantly to this case, s 421(1)(d) of the Act obliges a managing controller of property of a corporation (which includes the receiver in this case) to keep such financial records as correctly record and explain all transactions that the managing controller enters into as a managing controller.  Section 421(2) of the Act provides that any director may, unless the Court otherwise orders, personally inspect records kept by a managing controller of property pursuant to the duty imposed by s 421(1)(d).

The right of inspection at common law

1. For the purposes of this case it is unnecessary to undertake a detailed analysis of the common law right of a director to inspect and copy documents in the possession of the company.  It is sufficient to observe that the recognition of such a right is a well-established corollary of the functions and duties of the office of director and has been recognised as necessary for the purpose of enabling a director to discharge those functions and duties.[1]

   [1] See for example Re Geneva Finance Ltd; Quigley v Cook & Ors (1992) 7 WAR 496, 507 (Owen J); Boulos v Carter; Re TARBS World TV Australia Pty Ltd [2005] NSWSC 891 [43] (Barrett J).

The effect of the appointment of the receiver

1. The effect which the appointment of a receiver of the property of a company has upon a director's exercise of the rights to inspect the books and financial records of the relevant company was assessed by Owen J in Re Geneva Finance Ltd; Quigley v Cook.[2]  The summary of the law set out in that case has been adopted in subsequent decisions in other jurisdictions.[3]  Owen J summarised the law as follows:[4]

   [2] (1992) 7 WAR 496.

   [3] See for example Boulos v Carter [44].

   [4] Re Geneva Finance Ltd (513).

   1.The directors have a statutory right to inspect the accounting records of the company, although query whether the right is exercisable against a third party properly in possession of the records and query also whether the court has a discretion to grant or refuse access.

   2.The directors have a common law right to inspect books and records generally and the court has a residual discretion whether or not to order that access be given.

   3.In a pre-receivership situation, the right of access is not conditioned on the directors demonstrating a “need to know”, although access may be refused where there is clear proof of a misuse of power, the onus of which lies on those asserting it.

   4.The appointment of a receiver alters the position to the extent necessary to recognise the receiver's pre-eminent position in realising assets for the benefit of the debenture holder.

   5.A receiver is entitled to possession of the books and records of the company by virtue of the proprietary interest of the debenture holder and the receiver has no legal title to the documents.

   6.The receiver's entitlement to possession is purposive. It exists to enable him to fulfil the role for which he was appointed, namely, to administer the company and realise the assets so as to repay or reduce the debt owing to the debenture holder.

   7.Because the entitlement to possession is purposive it is not necessarily exclusive. Third parties who would otherwise have a right of inspection may still be able to insist on access.

   8.The subject of inquiry should be the role and function of the receiver rather than the identity of the residual duties which remain with the directors. The receiver would be justified in refusing to grant access to the documents where to do so would impede the receiver in the proper exercise of his functions or would impinge prejudicially upon the position of the debenture holder by threatening or imperilling the assets which are subject to the charge.

2. The considerations identified by Owen J are relevant to the ambit of the common law right of a director to inspect company documents and to the exercise of any discretion a court might have with respect to ordering compliance with the statutory rights to which I have referred. 

3. In this case the receiver does not assert that grant of the right of inspection would impede the proper exercise of his functions or prejudice the position of any secured creditor.  Accordingly, in accordance with the principles enunciated above, in this particular case the fact that a receiver has been appointed to the property of the Company does not, of itself, impinge upon Ms Cathcart's exercise of the various rights to which I have referred.

The books and records of the Company

1. It is significant to note that the statutory rights extend only to the books (in the case of s 198F of the Act) and the financial records (in the case of s 290 and s 421 of the Act) of the Company.  Further, the common law right applies only to documents in the possession of the Company, as compared to documents prepared by the receiver for his own benefit or protection and which are held by him in that capacity.  The distinction between those categories of documents was helpfully explained by Barrett J in Boulos v Carter in the following terms:[5]

   The other point to be mentioned here is that documents created or received by the receivers in the course of acting for the company (including as the agent of the company under the charge) must be regarded as owned by the company, even though they are, upon creation or receipt, in the possession of the receivers and will remain in their possession while they remain in office.  Of course, not every document created by receivers during receivership will belong to the company.  Excluded will be documents prepared by the receivers for their own benefit or protection and documents referable only to the receivers' relationship with their appointor.  But when the receivers act for the company in and about the conduct of its business or the sale of its property, the agency they exercise is not different in its essential nature from administration by a board of directors. I would adopt, in this respect, the following statement at pp 903 - 4 of the second edition of Tolley's Company Law edited by S Barc and N Bowen:

   On the termination of the receivership the company is entitled to the return of only those documents in the receiver's possession which belong to the company. Ownership depends on the capacity in which he acquired them.  Documents generated or received by the receiver pursuant to duty to manage the company's business or to dispose of the assets belong to the company.  Documents containing advice and information about the receivership or about the company brought into existence to enable the receiver to advise the holder of the charge belong to the holder.  Notes, calculations and memoranda prepared by the receiver, not pursuant to any duty to prepare them but to better enable him to discharge his duties, belong to the receiver.  The fact that the documents were prepared at the company's expense is not decisive (see Gomba Holdings UK Ltd v Minories Finance Ltd, Financial Times, 11 November 1987).

   [5] [2005] NSWSC 891 [47].

The documents requested

1. It is appropriate to now apply these legal principles to the various categories of documents requested by Ms Cathcart using the numbering adopted in her written submissions,[6] although it is necessary to first deal with a category of documents Ms Cathcart has requested which are not given a numbered category in her submissions.

   [6] Second Defendant's Outline of Submissions dated 19 September 2016 [5.1].

2. Ms Cathcart refers to s 436DA of the Act and asks to inspect declarations made by the receiver pursuant to its terms.  That request is, with respect, based upon a misconception as to the scope and operation of the section.  By its express terms, the section applies to an administrator appointed by a company, a liquidator or a secured creditor.  Mr Carrello is, however, a receiver and manager appointed by the court, and accordingly s 436DA has no application.

3. The first numbered category of documents sought by Ms Cathcart is an Excel version of cattle RFID, NLIS Scans.  The receiver advises that inspection of this document was provided to Ms Cathcart on 19 September 2016.

4. The second numbered category of documents sought by Ms Cathcart concerns two valuations undertaken by Elders.  In her submissions, Ms Cathcart requests inspection of 'valuations or evaluations from (a) Elders (b) Independent'.  In his written submissions, the receiver does not expressly address whether there was any independent valuation or evaluation, nor if such a document has been provided to Ms Cathcart.  However, the receiver asserts in paragraph [8] of his submissions in reply that all documents falling within certain numbered categories including category 2 have already been disclosed, and there is no reason to doubt that assertion on the evidence before the court.

5. The third numbered category of documents sought by Ms Cathcart relates to the proceeds of sale of wool.  However, the receiver advises that wool was not sold as a separate commodity and there are, therefore, no documents falling within that category.

6. The fourth numbered category of documents sought by Ms Cathcart is livestock transfer or sale documents.  The receiver advises that 14 such documents have been annexed to affidavits filed in these proceedings and to which Ms Cathcart has access.  Further, category 4 is one of those categories in respect of which the receiver asserts that all documents in his possession have been disclosed, and there is no reason to doubt that assertion, on the evidence before the court.

7. The fifth numbered category of documents sought by Ms Cathcart concerns police reports in relation to missing or stolen sheep and details of any conversations relating to such matters.  The receiver asserts that Ms Cathcart has been provided with all relevant correspondence passing between him and the police, but states that he has not provided to Ms Cathcart an internal memorandum relating to a telephone conversation with police.  The receiver asserts that this memorandum belongs to the receiver and is not a part of the Company's books and records.  In the absence of evidence, I do not accept that assertion, as it is inconsistent with the principles enunciated by Barrett J in Boulos v Carter.  The sheep were the property of the Company and the receiver was charged with the responsibility of protecting the Company's interest in its assets.  Accordingly, communications with police relevant to the preservation of the Company's assets were undertaken by the receiver as agent for the Company and records prepared by the receiver of such a conversation would, on the face of it, be a record of the Company.  Accordingly, unless the receiver wishes to produce further evidence, I will order that the receiver produce the memorandum to which he refers for inspection by Ms Cathcart.

8. The sixth numbered category of documents sought by Ms Cathcart is trucking invoices.  The receiver asserts that all such documents have been disclosed in affidavits filed in the proceedings to which Ms Cathcart has access.  There is no reason to doubt that assertion, on the evidence before the court.

9. The seventh numbered category of documents sought by Ms Cathcart is waybills.  The receiver asserts that he does not have any waybills in his possession and there is no reason to doubt that assertion, on the evidence before the court.

10. The eighth numbered category of documents sought by Ms Cathcart relates to inspections undertaken by potential buyers.  The receiver asserts that he is unaware of any information relating to inspections undertaken by potential buyers because the sale process was conducted by an agent.  There is no reason to doubt that assertion, on the evidence before the court.

1. The ninth numbered category of documents sought by Ms Cathcart relates to veterinary advice received.  The receiver asserts that he did not receive any veterinary advice and there is no reason to doubt that assertion, on the evidence before the court.

2. The tenth numbered category of documents sought by Ms Cathcart relates to independent management advice.  The receiver asserts that the only written advice he received in relation to management of the livestock has previously been disclosed in an affidavit filed in the proceedings and to which Ms Cathcart has access.  There is no reason to doubt that assertion.  However, the receiver also asserts that file notes made of advice received are not part of the Company's books and records.  For the reason I have already given, I do not accept that assertion essentially because it can be inferred, in the absence of evidence to the contrary, that the advice related to the management of the company's assets.  Accordingly, unless the receiver wants to adduce evidence in relation to those file notes, I will order their production for inspection by Ms Cathcart.

3. The eleventh numbered category of documents requested by Ms Cathcart is documents containing details of legal fees.  The receiver asserts that all information relating to legal fees has been provided in documents annexed to affidavits filed in the proceedings and to which Ms Cathcart has access.  There is no reason to doubt that assertion, on the evidence before the court.

4. The twelfth numbered category of documents requested by Ms Cathcart relates to invoices and payments.  The receiver asserts that all documents recording invoices and payments have been annexed to affidavits filed in the proceedings and to which Ms Cathcart has access, and there is no reason to doubt that assertion, on the evidence before the court.

5. The thirteenth numbered category of documents requested by Ms Cathcart concerns fee agreements.  The receiver asserts that all documents pertaining to fee agreements into which he has entered have been annexed to affidavits filed in the proceedings and to which Ms Cathcart has access.  There is no reason to doubt that assertion, on the evidence before the court.

6. Ms Cathcart also requests access to a category of documents she numbers 13a, being agistment agreements.  The receiver asserts that there were no written agistment agreements, and there is no reason to doubt that assertion, on the evidence of the court.

7. The fourteenth numbered category of documents requested by Ms Cathcart relates to time sheets.  The receiver asserts that all documents relevant to time recorded in the possession of the receiver have been annexed to affidavits filed in the proceedings to which Ms Cathcart has access and there is no reason to doubt that assertion, on the evidence before the court.

8. The fifteenth category of documents requested by Ms Cathcart relates to any actual or proposed BAS return.  The receiver asserts that all documents falling within that category have been annexed to affidavits filed in the proceedings and to which Ms Cathcart has access and there is no reason to doubt that assertion, on the evidence before the court.

9. The sixteenth numbered category of documents requested by Ms Cathcart concerns details of communications with Mr Allan Caratti and a letter from Lavan Legal dated 23 March 2016.  The receiver asserts that written correspondence between the receiver and Mr Allan Caratti has already been provided to Ms Cathcart, as has the letter from Lavan Legal dated 23 March 2016.  However, the receiver does not expressly assert that all such correspondence has been provided.  If the receiver will provide that confirmation, obviously no point or purpose would be served in ordering inspection of documents coming within that category.  The receiver also asserts that file notes recording conversations or meetings with Mr Allan Caratti are documents of the receiver and not of the Company.  For the reason already given, in the absence of any further evidence, I do not accept that assertion and will order that such file notes be produced for inspection by Ms Cathcart.

10. The seventeenth numbered category of documents requested by Ms Cathcart is the telephone records of an officer of Elders, Mr Andrew Farson.  The receiver asserts that he does not have and should not be expected to have those records and there is no reason to doubt that assertion, on the evidence before the court.

11. The eighteenth and nineteenth numbered categories of documents requested by Ms Cathcart relate to advertisements and expressions of interest for rams and sheep on Young River Station.  The receiver asserts that there were no separate advertisements or expression of interest forms for either the sheep or the rams on Young River Station and that all livestock were advertised together and included in the expression of interest process, and that documents relating to that process have been annexed to affidavits filed in the proceedings and to which Ms Cathcart has access.  There is no reason to doubt that assertion, on the evidence before the court.

Summary

1. For the reasons I have given, if the receiver confirms that all written communications with Mr Allan Caratti falling within the sixteenth numbered category have been disclosed, I will not order production of those documents.  In the absence of any further evidence I will, however, order production of the memorandum and file notes to which I have referred within the categories numbered 5, 10 and 16 by Ms Cathcart.  However, I will not order the receiver to produce any other documents for inspection by Ms Cathcart.

Costs

1. I will order that the costs of Ms Cathcart's application be reserved.  It would be convenient to hear argument on the issue of those costs at the hearing listed for 10 November 2016.