Re Ausinca Resources Limited
[2017] VSC 129
•22 March 2017
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
S CI 2016 04938
IN THE MATTER of AUSINCA RESOURCES LIMITED (ACN 122 968 905)
| VANETSANOS PANOTIS and others (according to the schedule attached) | Plaintiffs |
| v | |
| AUSINCA RESOURCES LIMITED (ACN 122 968 905) | Defendant |
---
JUDGE: | RANDALL AsJ |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 20 January 2017, 15 February 2017 and submissions filed 1 March 2017 |
DATE OF JUDGMENT: | 22 March 2017 |
CASE MAY BE CITED AS: | Re Ausinca Resources Limited |
MEDIUM NEUTRAL CITATION: | [2017] VSC 129 |
---
CORPORATIONS – Section 247A of the Corporations Act 2001 (Cth) – Application by member – application to inspect books of the company – Pre-share purchase representations – Whether application seeks inspection in capacity as a member – Application granted.
---
APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Mr J A G McComish | Russell Kennedy |
| For the Defendant | Dr O Bigos | Hall & Wilcox |
HIS HONOUR:
This is an application by the plaintiffs to inspect books of the company pursuant to s 247A of the Corporations Act 2001 (Cth) (‘the Act’).
Background
The company is an unlisted Australian public company limited by shares and was registered on 8 December 2006. The plaintiffs have been shareholders of the company since late 2006 and mid-2007.
The first plaintiff deposed that prior to becoming a shareholder, no disclosure statement or prospectus was provided to him. However, he determined to invest in the company by becoming a shareholder based upon representations made to him on behalf of the company. Those representations were to the following effect:
(a) Ausinca (the company) owned an interest in a mining operation in the Apurimac and Cuzco regions of Peru;
(b) the company’s interest was a right to acquire 28 per cent of Apurimac Ferrum and (on a diluted basis) 24.5 per cent of D & C Group S.A.C via a wholly owned Peruvian subsidiary of the company;
(c) there would be an initial public offering in the company in around mid-2007;
(d) the pre-IPO investment cycle would be short and it was likely that investments would be made immediately thereafter; and
(e) the investments were to be solicited from close associates of [the promoter], with the closeness of the relationship and the relationship of trust important factors to maximise the likelihood of profits.[1]
[1]Paragraph 11 of the affidavit of the First Plaintiff filed 1 December 2016.
The First Plaintiff contends that the company failed to adhere to compliance provisions under the Act. Since 21 November 2014, ASIC records disclose that seven annual reports (from 2008 to 2014) have been filed by the company.
The First Plaintiff contends that it is disclosed by the annual reports that, relevantly:
(a) $10,500,000 was raised from share issues in 2006 and 2007;
(b) whilst an amount of over $10 million was raised, the investment in Apurimac Ferrum was recorded at $1,139,418;
(c) ‘that there was a “shoot out” between the entities owning interests in the Peruvian mining operation in December 2012, the result of which was that Ausinca no longer owned its major asset (the ownership of shares in Apurimac Ferrum and D & C Group S.A.C). The “shoot out” resulted in the indirect shareholding of Ausinca in Apurimac Ferrum being subject to a transfer to another company called Strike Resources Ltd for consideration of USD$30.70.’[2]
[2]Paragraph 16(e) of the affidavit of the First Plaintiff filed 1 December 2016.
The various reasons for seeking to inspect were set out in paragraph 20 of the First Plaintiff’s affidavit. Those reasons demonstrated that the inspection to be made was for a proper purpose as that expression is used in s 247A(1). However, one of the reasons set out was as follows:
(c)The plaintiffs suspect that they were misled in respect of their initial investments in Ausinca.[3]
[3]Paragraph 20(c) of the affidavit of the First Plaintiff filed 1 December 2016.
The company contends that delving into whether or not the plaintiffs were misled in respect of their initial investments is an antithetical purpose pursuant to s 247A.
On 15 February 2017 I made orders pursuant to s 247A of the Act authorising the plaintiffs, including their legal representatives to inspect the books and records of the defendant. There was an extant issue about the inspection of books insofar as the subject matter related to alleged representations made to the plaintiffs before they became members of the company. The further submissions were also to deal with the question of costs.
Although there was acceptance of a majority of categories of documents to be inspected and some revision to the wording of other categories, the issue of the categories referred to in paragraphs 4, 10 and 16 (relating to the pre-investment) (herein after referred to as the Schedule B documents) was required to be resolved by the Court.
Schedule B Documents
The gravamen of the defendant’s supplementary submissions is that s 247A:
…is intended to enable a member of a company to inspect its books in order to obtain information about matters that, as a member or shareholder of the company, he ought to be informed of by the company.
Reliance was placed on Re Tolco Pty Limited.[4]
[4][2016] NSWSC 1069.
In Re Tolco Brereton J said:
Inspection has been refused where the purpose has been:
1. To ascertain the value of the equity of redemption in respect of a mortgage issued over the member’s share by investigating the exercise of rights between mortgagor and mortgagee.
2. To outflank a claim for client legal privilege made (or anticipated) over the company’s books15 or to serve as a substitute for discovery.
3. To obtain confidential information for a competitor to the company.
4. To improve the chances of a take-over bid.
5. To ascertain whether the corporation is solvent (a finding which should be attended by some doubt if it is intended to state a general principle)
[citations omitted]
From that comparison, it emerges – perhaps unsurprisingly – that authority to inspect has been refused where the purpose is unrelated to the interests of the member qua member, or savours of an abuse of process, but has been granted where the purpose is connected with the member’s interest qua member and is not vexatious.[5]
[5]Re Tolco Pty Limited [2016] NSWSC 1069 at [19]
While I accept what is set out by Brereton J is the approach followed in a plethora of cases, a similar circumstance was considered in Knightswood Nominees Pty Ltd v Sherwin Pastoral Company Ltd.[6] Brooking J made an order for inspection of documents which related to the period two years before the plaintiff became a member. The documents permitted to be inspected included documents which could be categorised as bearing upon the accuracy of the prospectus provided to the plaintiff at the time the member acquired shares.
[6](1989) 15 ACLR 151.
Brooking J at [158] said:
The plaintiff wishes to inspect the books to enable it to determine the size of the company’s herd at the time when the company acquired that very costly asset and at the present time. Either this is itself a purpose reasonably related to the status of a member, or it is something which the plaintiff wishes to do for purposes reasonably related to that status. In either case the purpose is, I am satisfied, a proper purpose... . If one treats as the purpose not the ascertainment of the size of the herd then and now, but the purposes to be served by that ascertainment, then these are the investigation of rights of action which the company may have against the vendors or warrantors or promoters in relation to the size of the herd as represented or warranted, the investigation of the present value of one of the principal assets of the company and through this the value of the plaintiff’s shares and the investigation of whether the controllers of the company have acted honestly and diligently in relation to its affairs and whether an attempt should be made to have them sued or removed.
It has not been suggested that the fact that the plaintiff is avowedly concerned with the value, not just of its own investment, but also of the very much greater investment of the Comelybank company, prevents its purpose from being a proper one, and I do not think it does.
Brooking J’s statement explains the ambit of or the application of ‘qua member’ in circumstances where I am required to determine if the application is made by a member in the capacity of a member for a proper purpose. Brooking J, in effect, applied the notion of ‘qua member’ to include the inspection of documents generated prior to the applicant becoming a member but effecting the interest of the applicant as a subsequent member.
Accordingly, I determine that I should not quarantine the documents referred to in categories 4, 10 and 16 as being restricted to claims which might arise out of the relationship of purchaser and vendor. Following Brooking J’s decision, I determine that the ascertainment of the plaintiffs’ investment at the time of taking out the shares:
Reasonably related to the status of a member, or it is something which the plaintiff wishes to do for purposes reasonably related to that status.[7]
[7]Ibid [157].
The documents referred to in categories 4, 10 and 16 are required to be produced. The categories are to be amended as discussed during the course of the hearing.
Costs
Subsequent to the hearing, the plaintiff filed a further affidavit of Michael Douglas Maine without leave. If that affidavit have had assisted the plaintiffs, I would have given the defendant leave to address the issues referred to therein or to make submissions on whether I ought to rely upon the affidavit or not. However, the affidavit was singularly unhelpful to the plaintiffs’ position. It demonstrated that various persons were in discussion about a wide range of issues. It would be fair to categorise those issues as of an uncertain nature and it is difficult to distil that any of the complaints or issues discussed dealt directly with the investment in the Peruvian mining operation or its subsequent sale.
It is further evident from the affidavit that there had been no attempt whatsoever to resolve the issue prior to the filing of the originating process. Once the defendant’s solicitors were engaged, the plaintiffs’ resisted any attempt to sensibly resolve the issue before me. Given the background of discussions since February 2016, I determine that the plaintiffs’ approach was cavalier and disruptive to resolving the issues by intercourse and otherwise unwarranted.
I will not hypothesise what might have ensued if the plaintiffs had made sensible overtures to resolve the matter prior to the filing of the originating process. However, the company readily accepted that a majority of the categories of the documents sought fell within the ambit of books of the company of which I was entitled to make an order pursuant to s 247A. There was little resistance in relation to other categories save that it was sought and accepted that the description should be appropriately worded. The sole issue was the determination of whether an order ought to have been made with respect to the Schedule B documents.
This is not an exercise in counting up the categories upon which the plaintiff was successful and those categories upon which the defendant was successful.
Accordingly, I decline to make any order for costs in relation to this proceeding.
SCHEDULE OF PARTIES
| S CI 2016 04938 | |
| BETWEEN: | |
| VANETSANOS PANOTIS | Firstnamed Plaintiff |
| ELIAS DELIYANIS | Secondnamed Plaintiff |
| A & E DAVIDSON PTY LTD (ACN 079 779 909) | Thirdnamed Plaintiff |
| JOHN KLONARIS | Fourthnamed Plaintiff |
| MARIA KLONARIS | Fifthnamed Plaintiff |
| CHRISTOS STATHOPOULOS | Sixthnamed Plaintiff |
| - and - | |
| AUSINCA RESOURCES LIMITED (ACN 122 968 905) | Defendant |
0
2
0