Reuther v Wallace - [2021] SASC 107

SUPREME COURT OF SOUTH AUSTRALIA
(Appeal to a Single Judge)
REUTHER & ANOR v WALLACE
[2021] SASC 107
Judgment of the Honourable Justice Parker
13 September 2021
APPEAL AND NEW TRIAL - APPEAL - GENERAL PRINCIPLES - RIGHT OF APPEAL - WHEN APPEAL LIES
CORPORATIONS - MEMBERSHIP, RIGHTS AND REMEDIES - MEMBERS' REMEDIES AND INTERNAL DISPUTES - OPPRESSIVE OR UNFAIR CONDUCT - WHAT CONSTITUTES - CONDUCT OF OR RELATING TO DIRECTORS
CORPORATIONS - MANAGEMENT AND ADMINISTRATION - FINANCIAL INFORMATION AND AUDIT - FINANCIAL REPORTS - RELIEF FROM REQUIREMENTS AS TO ACCOUNTS AND RECORDS OR FINANCIAL REPORTS
This is an appeal against the refusal of a Master to set aside notices issued under s 293 of the Corporations Act 2001 (Cth) (the Act) on the basis that the conduct of the respondent was not oppressive conduct within the meaning of s 232 of the Act.
The Master held that s 293 of the Act confers a statutory right upon a shareholder to require a company to produce audited accounts upon being served with a notice and that the Act draws no distinction between a shareholder who holds shares on trust and a shareholder who holds a beneficial interest in their own right. The Master held that if a trustee had no right to require an audit, no other person would be capable of exercising that right as the beneficiaries of the trust are not shareholders and could not seek relief under s 293.
The Master also held that the exercise of the statutory right conferred by s 293 did not amount to the conduct of a company’s affairs for the purposes of s 232(a). Further, the issue of such a notice does not amount to an actual or proposed act or omission by or on behalf of a company in terms of s 232(b).
The Master further held s 293 does not require a shareholder who issues a notice to have any purpose in doing so. Therefore, the contention that there was no proper purpose for the issuing of the notices was not relevant.
The appellant advanced 5 different grounds of appeal, distilled by the parties to 3 issues.
Held, per Parker J, granting leave to appeal but dismissing the appeal:
1.The obligation placed upon the company under s 293 that requires it to prepare, or take steps to have prepared on its behalf, financial statements falls within the ordinary meaning of the words used in s 232(b).
2.The issue of the s 293 notices is not “contrary to the interests of the members of the company as a whole” within the meaning of s 232(d) nor “oppressive to, unfairly prejudicial to or unfairly discriminatory” pursuant to s 232(e).

3. The occasion for the exercise of discretion to grant relief under s 233 does not arise.
Australian Securities Commission Act 1989 (Cth) s 30(b); Corporations Act 2001 (Cth) ss 53, 232, 233, 249D, 292, 293; Corporations Law (Cth) ss 53, 260(1); Fair Work Act 2009 (Cth), referred to.
Australian Securities Commission v Lucas (1992) 36 FCR 165; Cousins v Corporate Affairs Commission (1977) 3 ACLR 398, distinguished.
Dynasty Pty Ltd v Coombs (1995) 59 FCR 122; Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd (1998) 28 ACSR 688; Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd [2001] NSWCA 97; Goozee v Graphic World Group Holdings Pty Ltd (2002) 170 FLR 451; Reid v Bagot Well Pastoral Co Pty Ltd (1993) 61 SA SR 165, discussed.
Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304; Catto v Hampton Australia Ltd (in liq) (No 3) (2004) 89 SASR 234; Greeenhalgh v Arderne Cinemas Ltd [1951] Ch 286; Morgan v Flers Avenue Pty Ltd (1986) 10 ACLR 692; Trafalgar West Investments Pty Ltd v Superior Lawns Australia Pty Ltd (No 3) [2012] WASC 319; Trafalgar West Investment Pty Ltd v Superior Lawns Australia Pty Ltd (No 2) (2013) 275 FLR 55; Turnbull v National Roads and Motorists’ Association Ltd (2004) 186 FLR 360; Vigliaroni v CPS Investment Holdings [2009] VSC 428, considered.

REUTHER & ANOR v WALLACE
[2021] SASC 107
Appeal to a Single Judge

PARKER J: I granted leave to appeal but dismissed this appeal on 3 September 2021. I indicated at the time that I would publish my reasons later as I was about to commence several weeks leave. These are my reasons.
The appeal was against the refusal of a Master of this Court to set aside two notices issued under s 293 of the Corporations Act 2001 (Cth) (the Act) on the basis that the conduct of the respondent, Mr Kelley John Wallace, was not oppressive conduct within the meaning of s 232 of the Act.
The notices issued by Mr Wallace under s 293 of the Act required Australian Wind Services Pty Ltd (the company) to prepare audited financial reports and a director’s report for the years ending 30 June 2019 and 30 June 2020. Those notices were respectively issued on 29 June 2020 and 1 July 2020. In the former case, two months was allowed for compliance and, in the latter case, four months.
The company was the first respondent to the application determined by the Master and has been identified as the second appellant in this appeal. Because the company was not a moving party on the application before the Master, the parties accept that it should not have been named as an appellant and lacks standing to seek relief on the appeal.
Background
The appellant, Linda Olga Reuther, and Mr Wallace were formerly in a personal relationship and also directors, shareholders and employees of the company. In reasons delivered on 16 October 2018 Auxiliary Judge Roder noted that the personal and business relationships between Mr Wallace and Ms Reuther had irretrievably broken down. On 21 October 2017, Mr Wallace and Ms Reuther had reached a settlement agreement at a mediation. Their agreement was recorded in writing and signed by both parties. They agreed that Ms Reuther would purchase the shares held by Mr Wallace in the company at a price fixed by Mr Hugh McPharlin of Nexia Edwards Marshall, a chartered accountant with particular expertise in business valuation who is often engaged to give expert opinion or advice in family law disputes.
A process was agreed upon that would enable Mr McPharlin to value the shares. It was also agreed that Mr Wallace would resign as a director. That occurred on 21 October 2017. The matter came before Auxiliary Judge Roder in 2018 following an application by Mr Wallace for an appointment of a receiver and manager of the company who was to conduct a forensic audit of the company accounts and provide a report to the shareholders.
Auxiliary Judge Roder noted that difficulties had arisen between the parties in implementing the agreement of 21 October 2017. However, his Honour was not satisfied that the appointment of a receiver was necessary. The parties had reached an agreement which they needed to carry out. The Court could supervise that process. His Honour then adjourned the matter for further directions.
The valuation process agreed at the mediation in 2017 had still not been resolved when the matter came before the Master on 28 August 2020. As previously noted, Mr Wallace had by then served upon Ms Reuther notices under s 293 of the Act in respect of the years ending 30 June 2019 and 30 June 2020. Ms Reuther applied to have the notices set aside under s 233(1)(j) of the Act. That application was the subject of the decision by the Master. Her Honour’s decision is the matter now under appeal.
Mr Wallace has raised concerns about use of company funds by Ms Reuther based upon expenditure at various times and in widely differing amounts over the period from 2012 to 10 April 2017.[1] The specifically impugned payments with the greatest value were made in 2012 and 2014. The total amount identified by Mr Wallace is some $692,000. All of those payments predate the settlement agreement and also predate the period covered by the audited financial statements sought by Mr Wallace. In addition to the specifically impugned payments, Mr Wallace has also alleged that Ms Reuther received large overtime payments from the company without the supporting documentation required under the Fair Work Act2009 (Cth). No information has been provided to the Court about the quantum or timing of those payments.
[1] One payment of $556 in 2010 has also been called into question.
Mr Wallace’s solicitor, Ms Lori Kambitsis, has deposed in an affidavit dated 14 August 2020 that, in light of the information referred to in the preceding paragraph, she was instructed to issue the notices under s 293 because of the concerns held by Mr Wallace about the ongoing financial management of the company.
Ms Kambitsis has annexed to her affidavit bank statements relating to company accounts that indicate the date and amount and some other basic details relating to the impugned payments. Documents have also been prepared summarising each category of payment. Beyond that the affidavit of Ms Kambitsis provides minimal detail. Nevertheless, I accept that the circumstances are such as to cause Mr Wallace to hold a genuine concern about the legitimacy of the payments. Depending upon the circumstances surrounding each payment, they might potentially affect the share valuation being undertaken by Mr McPharlin. For example, the company might possibly be entitled to recoup moneys from Ms Reuther. However, there is no information before the Court as to whether and how the audited financial statements for the two later years requested by Mr Wallace may be affected by the impugned payments.
Submissions before the Master
Ms Reuther submitted that it would be oppressive or unfairly prejudicial to require her to prepare audited financial reports and a directors’ report for each of the years ending 30 June 2019 and 30 June 2020. Any interest that Mr Wallace might have in the company was effectively terminated on 21 October 2017. The value of the company, or any of its activities, after that date was irrelevant to the price at which she must buy his shares. Compliance with the notices will cause her unnecessary cost and will also provide him with confidential information to which he is not entitled.
For those reasons, Ms Reuther submitted that s 233(1) of the Act was enlivened. The effect of the agreement made in October 2017 was that Mr Wallace had effectively disposed of his shares and thereafter held them on trust for Ms Reuther. She supported her submission by reference to the decision in Trafalgar West Investment Pty Ltd v Superior Lawns Australia Pty Ltd (No 2) where Kenneth Martin J of the Supreme Court of Western Australia expressed doubt as to the ability of a former shareholder to continue an oppression action once they had divested themselves of their shares.[2]
[2] (2013) 275 FLR 55.
Mr Wallace submitted before the Master that the notices had been validly issued under the Act. The rights of a trustee shareholder were no different from those of a shareholder who held shares beneficially. Furthermore, in order to seek relief under s 233, it was necessary for Ms Reuther to first satisfy the requirements of s 232 of the Act. The conduct complained of by Ms Reuther did not fall within any of the categories identified in s 232 and nor was the issuing of the notices contrary to the interests of the members as a whole. The issuing of the notices was also not oppressive, prejudicial or discriminatory. Mr Wallace was simply exercising a statutory right. While he remains a shareholder, he continues to have an interest in the due administration of the company. The Act does not draw any distinction between trustee shareholders and the beneficial owners of shares.
Counsel for Mr Wallace referred to another decision of Kenneth Martin J in Trafalgar West Investments Pty Ltd v Superior Lawns Australia Pty Ltd (No 3).[3] It was held in that case that if a shareholder had issued a notice, the obligation to prepare financial reports remained after they ceased to be a shareholder. Counsel relied on that authority to submit that when a shareholder ceases to hold the beneficial interest in shares, but continues to hold them as trustee, the obligation to comply with the notice remains on foot.
[3] [2012] WASC 319.
The decision of the Master
The Master held that s 293 confers a statutory right upon a shareholder to require a company to produce audited accounts upon being served with a notice. The Act draws no distinction between a shareholder who holds shares on trust and a shareholder who holds a beneficial interest in their own right. Her Honour observed if such a distinction were to be drawn, it would effectively shield a company from such a request where shares were held by a trustee. If a trustee had no right to require an audit, no other person would be capable of exercising that right as the beneficiaries of the trust are not shareholders and could not seek relief under s 293.
The Master also concluded that no remedy was available under s 233 because the conduct complained of by Ms Reuther did not fall within the ambit of s 232. The exercise of the statutory right conferred by s 293 did not amount to the conduct of a company’s affairs for the purposes of s 232(a). The issue of such a notice also does not amount to an actual or proposed act or omission by or on behalf of a company in terms of s 232(b).
The Master also held that the contention that there was no proper purpose for the issuing of the notices was not relevant. That was because s 293 does not require a shareholder who issues a notice to have any purpose in doing so. Section 293 simply confers a right upon shareholders to require a company to provide directors’ reports and financial reports. Once that right is exercised, it creates an obligation on the company. That obligation is not qualified by any requirement that a purpose must be established. The obligation imposed by s 293 is also not qualified by a reference to s 232. There is no requirement that s 293 must be read subject to ss 232 and 233 of the Act.
The grounds of appeal
Ms Reuther had advanced five grounds of appeal. These may be briefly stated as follows:
1.The Judge erred in finding that the conduct of Mr Wallace in serving the two notices under s 293 was not conduct within s 232 of the Act.
2.The Judge erred in finding that the conduct of Mr Wallace was nothing more than the exercise of a statutory right which was not within “the conduct of the company’s affairs”.
3.The Judge erred in finding that the purpose for issuing such notices was irrelevant when in the circumstances the issue of the notices would only cause the company to incur significant costs that would not otherwise be incurred and would not assist in informing Mr Wallace of the fair valuation of his shareholding as at 21 October 2017.
4.The Judge erred in not finding that the exercise of a statutory right to issue notices under s 293 could nevertheless constitute conduct within the meaning of s 232 of the Act.
5.The Judge should have found that in all the circumstances that the conduct of Mr Wallace in issuing the notices was conduct of the company’s affairs that was either contrary to the interests of the members as a whole, or oppressive or unfairly prejudicial to Ms Reuther, both in her capacity as a shareholder and in her capacity as the person entitled to receive the transfer of the shareholding of Mr Wallace.
The relevant provisions of the Corporations Act 2001 (Cth)
The following provisions of the Act are relevant to this appeal:
53Affairs of a body corporate
For the purposes of the definition of examinable affairs in section 9, section 53AA, 232, 233 or 234, paragraph 461(1)(e), section 487, subsection 1307(1) or section 1309, or of a prescribed provision of this Act, the affairs of a body corporate include:
(a)the promotion, formation, membership, control, business, trading, transactions and dealings (whether alone or jointly with any other person or persons and including transactions and dealings as agent, bailee or trustee), property (whether held alone or jointly with any other person or persons and including property held as agent, bailee or trustee), liabilities (including liabilities owed jointly with any other person or persons and liabilities as trustee), profits and other income, receipts, losses, outgoings and expenditure of the body; and
(b)in the case of a body corporate (not being a licensed trustee company or the Public Trustee of a State or Territory) that is a trustee (but without limiting the generality of paragraph (a))—matters concerned with the ascertainment of the identity of the persons who are beneficiaries under the trust, their rights under the trust and any payments that they have received, or are entitled to receive, under the terms of the trust; and
(c)the internal management and proceedings of the body; and
(d)any act or thing done (including any contract made and any transaction entered into) by or on behalf of the body, or to or in relation to the body or its business or property, at a time when:
(i)a receiver, or a receiver and manager, is in possession of, or has control over, property of the body; or
(ii)the body is under administration; or
(iia)a deed of company arrangement executed by the body has not yet terminated; or
(iib)the body is under restructuring; or
(iic)a restructuring plan made by the body has not yet terminated; or
(iii)a compromise or arrangement made between the body and any other person or persons is being administered; or
(iv)the body is being wound up;
and, without limiting the generality of the foregoing, any conduct of such a receiver or such a receiver and manager, of an administrator of the body, of an administrator of such a deed of company arrangement, of a restructuring practitioner for the body, of a restructuring practitioner for such a restructuring plan, of a person administering such a compromise or arrangement or of a liquidator or provisional liquidator of the body; and
(e)the ownership of shares in, debentures of, and interests in a managed investment scheme made available by, the body; and
(f)the power of persons to exercise, or to control the exercise of, the rights to vote attached to shares in the body or to dispose of, or to exercise control over the disposal of, such shares; and
(g)matters concerned with the ascertainment of the persons who are or have been financially interested in the success or failure, or apparent success or failure, of the body or are or have been able to control or materially to influence the policy of the body; and
(h)the circumstances under which a person acquired or disposed of, or became entitled to acquire or dispose of, shares in, debentures of, or interests in a managed investment scheme made available by, the body; and
(j)where the body has made available interests in a managed investment scheme—any matters concerning the financial or business undertaking, scheme, common enterprise or investment contract to which the interests relate; and
(k)matters relating to or arising out of the audit of, or working papers or reports of an auditor concerning, any matters referred to in a preceding paragraph.
...
232Grounds for Court order
The Court may make an order under section 233 if:
(a) the conduct of a company’s affairs; or
(b) an actual or proposed act or omission by or on behalf of a company; or
(c) a resolution, or a proposed resolution, of members or a class of members of a company;
is either:
(d) contrary to the interests of the members as a whole; or
(e) oppressive to, unfairly prejudicial to, or unfairly discriminatory against, a member or members whether in that capacity or in any other capacity.
For the purposes of this Part, a person to whom a share in the company has been transmitted by will or by operation of law is taken to be a member of the company.
233Orders the Court can make
(1)    The Court can make any order under this section that it considers appropriate in relation to the company, including an order:
(a) that the company be wound up;
(b)that the company’s existing constitution be modified or repealed;
(c)regulating the conduct of the company’s affairs in the future;
(d)for the purchase of any shares by any member or person to whom a share in the company has been transmitted by will or by operation of law;
(e)for the purchase of shares with an appropriate reduction of the company’s share capital;
(f)for the company to institute, prosecute, defend or discontinue specified proceedings;
(g)authorising a member, or a person to whom a share in the company has been transmitted by will or by operation of law, to institute, prosecute, defend or discontinue specified proceedings in the name and on behalf of the company;
(h) appointing a receiver or a receiver and manager of any or all of the company’s property;
(i)restraining a person from engaging in specified conduct or from doing a specified act;
(j)      requiring a person to do a specified act.
…
292Who has to prepare annual financial reports and directors’ reports
(1)     A financial report and a directors’ report must be prepared for each financial year by:
(a) all disclosing entities; and
(b) all public companies; and
(c) all large proprietary companies; and
(d) all registered schemes.
Note:This Chapter only applies to disclosing entities incorporated or formed in Australia (see subsection 285(2)).
Small proprietary companies
(2)     A small proprietary company has to prepare the financial report and directors’ report only if:
(a) it is directed to do so under section 293 or 294; or
(b) it was controlled by a foreign company for all or part of the year and it is not consolidated for that period in financial statements for that year lodged with ASIC by:
(i) a registered foreign company; or
(ii) a company, registered scheme or disclosing entity; or
(c) it has one or more CSF shareholders at any time during the financial year.
The rest of this Part does not apply to any other small proprietary company.
Small companies limited by guarantee
(3) Despite subsection (1), a small company limited by guarantee has to prepare the financial report and directors’ report only if it is directed to do so under section 294A or 294B. The rest of this Part does not apply to any other small company limited by guarantee.
The appellant’s submissions

The appellant submits that a broad interpretation has been given to the term “a company’s affairs” in s 232(a).[4] That expression has been given a non‑exhaustive definition in s 53 of the Act for the purposes of s 232, amongst other provisions. Paragraph (a) of s 53 refers to “the promotion, formation, membership, control, business, trading, transactions and dealings” of the company while s 53(c) refers to “the internal management and proceedings of the body”.
[4] Vigliaroni v CPS Investment Holdings Pty Ltd [2009] VSC 428 at [63].
The appellant submits that s 232 has been drafted broadly so as to provide members with the maximum protection against commercially unfair conduct carried on against them by other members of the company. Thus, there is no warrant for the restrictive meaning adopted by the Master of the phrase “conduct of the company’s affairs” in s 232(a). Her Honour should have found that the action of Mr Wallace in issuing the notices under s 293 requiring the company to prepare audited financial reports and directors’ reports was conduct of the company’s affairs. This conduct fell within the ordinary meaning of those words and also within the phrase “affairs of the company” as defined in s 53(a) being “business, trading, transactions and dealings” of the company or the “internal management” of the company under s 53(c).
The appellant further submits that the Master erred in finding that the conduct of Mr Wallace in issuing the notices was not contrary to the interests of the members as a whole under s 232(d). Thus, in Turnbull v National Roads and Motorists Association Ltd Campbell J of the Supreme Court of New South Wales held that waste of the company resources on the conduct of a general meeting was contrary to the interests of members as a whole.[5] The appellant contends that is also the case in the present matter because the mediation agreement only entitles Mr Wallace to the value of his shares as at 21 October 2017. The financial position of the company in 2019 and 2020 is not relevant to the valuation exercise being undertaken pursuant to the mediation agreement. Thus, the preparation of the reports required by the s 293 notices is a waste of the company resources.
[5] (2004) 186 FLR 360.
Further to that submission, the appellant contends that the Master erred by focusing on the fact that s 293 confers a statutory right to require the production of audited accounts without any proper regard to the fact that the financial information being sought was irrelevant to the task of valuation. Mr Wallace’s conduct should have been considered in the context of the dispute over the value of his shareholding. When examined in that light it is apparent that exercise of the statutory right served no legitimate purpose and constituted a waste of the company’s resources. Because the value of Mr Wallace’s shares had crystallised as at 21 October 2017, the waste of the company’s resources would be borne entirely by Ms Reuther as the remaining shareholder.
Because of the finding made by the Master under s 232, it was not necessary for her Honour to consider the exercise of the discretion under s 233. That provision confers a wide discretion on the Court to make any order “that it considers appropriate in relation to the company”. That broad discretion has been conferred and coupled with extensive powers so that the Court may award a remedy that will eliminate oppression and enable the causes of any future oppression to be avoided.[6] The appellant also observes that in Campbell v Backoffice Investments Pty Ltd the High Court affirmed that ss 232 and 233 are to be read broadly and that “[t]he imposition of judge-made limitations on their scope is to be approached with caution.”[7]
The respondent’s submissions
[6] Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd (1998) 28 ACSR 688.
[7] (2009) 238 CLR 304 at [72] (French CJ).
The respondent submits that the use of the possessive case in the phrase “the conduct of a company’s affairs” in s 232(a) reflects a deliberate legislative choice. That is because the provision is directed at the conduct of the company in its affairs rather than the conduct of other persons.
The respondent further submits that the definition of “the affairs of a body corporate” in s 53 of the Act also focuses on the conduct of the body in question. The only aspect of the definition that is potentially relevant to this matter is s 53(a). That placitum is qualified by the inclusion of the words “of the body” at the end of the provision. This qualification indicates that the matters listed necessarily relate to the conduct and the actions of the company rather than those of its members. Thus, for example, the provision refers to the “control … of the body” and the “transactions and dealings … of the body”.
The respondent further submits that s 53(a) does not refer to the exercise of statutory rights by a company member as being an affair of the company. Such a construction is contrary to the plain meaning of the section. The respondent also notes that the appellant has not identified any authority in support of its proposition.
The fact that s 232(a) is directed at the conduct of a company is reinforced by its statutory context. Express provision has been made in s 232(c) whereby resolutions or proposed resolutions of the members of the company may be capable of meeting the threshold requirements. No other statutory conduct of members is identified.
If the legislature had intended the issue of statutory notices designed to ensure transparency in the financial affairs of a small proprietary company to be capable of constituting conduct for the purposes of s 232, that would have been specified together with the references to resolutions and proposed resolutions of members in s 232(c).
The respondent submits that for these reasons the Master correctly found that the issue of the s 293 notices did not come within the conduct identified in s 232. Thus, the threshold for the making of orders under s 233 has not been satisfied.
The respondent also submits that when determining whether conduct is “contrary to the interests of members as a whole” within the meaning of s 232(d), it is necessary to focus upon the interests of an “individual hypothetical member” rather than upon the interests of persons who are members for the time being.[8]
[8] Goozee v Graphic World Group Holdings Pty Ltd (2002) 170 FLR 451 at [42].
The respondent contends that the submission by the appellant that the costs that would be incurred in complying with the s 293 notices is “pointlessly wasteful” because Mr Wallace holds his shares as a trustee so that the costs will ultimately be borne by Ms Reuther, shows that she has approached the matter from her subjective viewpoint rather than from the objective viewpoint of an individual hypothetical member.
In the course of the valuation exercise, matters have come to notice which give rise to concerns about the ongoing financial management of the company by Ms Reuther. The interests of an individual hypothetical member of the company will be enhanced rather than prejudiced by the provision of financial accounts and directors’ reports in circumstances where there is a significant question about the use of company funds by Ms Reuther in her capacity as the sole director of the company. The failure to provide accounts is contrary to the interests of that hypothetical member.
Mr Wallace also submits that his conduct in issuing the statutory notices will only come within s 232(e) if it is oppressive to a member or unfairly prejudicial or discriminatory. These concepts give rise to a composite whole. Technical distinctions should not be drawn between the several elements.[9] An objective test of commercial unfairness must be applied by asking “whether objectively in the eyes of a commercial bystander, there has been unfairness, namely conduct that is so unfair that reasonable directors who considered the matter would not have thought the decision fair”.[10] Mere prejudice to members does not suffice. The outcomes must be unfair to fall within s 232(e).
[9] Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd [2001] NSWCA 97 at [4].
[10] Dynasty Pty Ltd v Coombs (1995) 59 FCR 122 at 130.
The appellant further submits that conduct that applies equally to all shareholders is not unfairly discriminatory or prejudicial as the consequences will apply in like manner to all shareholders.[11]
[11] Catto v Hampton Australia Ltd (in liq) (No 3) (2004) 89 SASR 234 at [94].
The appellant also submits that s 293(e) is directed at outcomes rather than purposes. Thus, the purpose of Mr Wallace in issuing the notices is not relevant. In any event, his unchallenged evidence is that the notices were issued because of the multiple concerns he holds about the ongoing financial management of the company. While s 293 does not impose any purposive threshold or requirement, the concerns of a member about the financial management of a small proprietary company is plainly an appropriate circumstance for the issuing of a notice under s 293. In these circumstances, his conduct does not meet the objective test of commercial unfairness. There is also no unfair differential treatment of members.
While acknowledging that s 233 confers a broad discretionary power, it does not expressly include a power to set aside the notices issued under s 293. Even if the Court were to be satisfied that the threshold requirements of s 232 were satisfied, Mr Wallace submits that in the circumstances of this case the discretion should not be exercised. The notices require the production of audited financial reports and directors’ reports in circumstances where questions have arisen about the conduct of the financial affairs of the company by Ms Reuther. In light of the seriousness of those matters and the general public policy which informs a statutory right conferred by s 293, Mr Wallace submits that the Court should decline to exercise its discretion and refuse to grant any relief.
Consideration
While Ms Reuther has advanced five grounds of appeal, the parties agree that they essentially distil down to three issues. Those issues are, first, whether the issue of the notices under s 293 by Mr Wallace occurred in “the conduct of a company’s affairs” within the meaning of s 232(a). Secondly, was the issue of the notices “contrary to the interests of the members of a whole” in terms of s 232(d) or “oppressive to, unfairly prejudicial to or unfairly discriminatory” pursuant to s 232(e). Thirdly, did the Master err in finding that Mr Wallace’s purpose in issuing the notices was irrelevant.
Whether the issue of the notices occurred in the conduct of the company’s affairs
While neither counsel has been able to identify any authority where the potential operation of ss 232 and 233 has been considered in relation to the issue of a notice under s 293, they have referred to the decision of Campbell J in Turnbull v National Roads and Motorists’ Association Ltd.[12] The NRMA had been in dispute with its employees about working conditions. A member gave notice under s 249D of the Act requiring the directors to call a general meeting to consider resolutions to amend the NRMA constitution to enhance employment conditions. In the meantime, the industrial dispute was resolved by way of an enterprise bargaining agreement and neither the employees, nor their union, the directors nor the NRMA desired to proceed with the meeting. The NRMA is a very large membership based organisation and the cost of conducting the proposed meeting would be substantial.[13]
[12] (2004) 186 FLR 360.
[13] The NRMA performs much the same role in NSW as the RAA in this State.
The plaintiffs in the action were the directors of the NRMA. They sought orders under ss 232 and 233 of the Act that the meeting not be called or convened and that the relevant resolution not be put at the next ensuing general meeting. Campbell J granted relief in the terms sought by the plaintiffs.
Before summarising the reasoning adopted by Campbell J, I note that s 249D of the Act requires the directors of a company to call and arrange a general meeting at the request of members with at least five percent of the votes that may be cast at a general meeting or at least 100 members who are entitled to vote at such a meeting. The obligation placed upon directors to call a general meeting upon the giving of a valid notice under s 249D is very similar to the duty placed upon a company by the giving of a notice under s 293. In the latter case, shareholders with at least five percent of the votes in a small proprietary company may give the company a direction to prepare a financial report and directors’ reports for a financial year and to send them to all the shareholders. Section 293(3)(c) provides that the direction may specify that the financial report is to be audited. Mr Wallace exercised that option.
While s 249D and s 293 are couched in very similar terms, I note that the obligation under s 249D is placed upon the directors of the company whereas the duty under s 293 is placed directly upon the company. However, I do not consider that this provides a basis to distinguish the reasoning of Campbell J in the NRMA case. In both instances, the company is required to take the action specified in the notice.
The first step in the reasoning of Campbell J was that paragraph (c) of s 53 defines the term “the affairs of a body corporate” to include “the internal management and proceedings of the body”. His Honour held that this limb of the definition would include the holding of a meeting.[14] Thus, the proposed meeting constituted “the conduct of a company’s affairs” within the meaning of s 232(a). Campbell J noted that it would cost $1.8 Million to conduct the meeting and it would be an “empty charade” because nobody supported the proposed motions.[15] In that light, Campbell J found that the holding of the meeting would be “contrary to the interests of the members as a whole” in terms of s 232(d).
[14] (2004) 186 FLR 360 at [48].
[15] Ibid at [52].
Campbell J observed that the power of the Court to make an order under ss 232 and 233 of the Act on the ground that the exercise of a right conferred by the Act was contrary to the interests of the members as a whole was “a power which must be exercised with the greatest of care”.[16] Nevertheless, his Honour held that it was “a case where it is appropriate to exercise this extraordinary power”.[17] Campbell J held that making an order to restrain the holding of the meeting constituted “regulating the conduct of the company’s affairs in the future” pursuant to s 233(1)(c).
[16] Ibid at [51].
[17] Ibid at [52].
While I am not bound by the decision of Campbell J, I respectfully consider his Honour’s reasoning to be correct. The facts of the NRMA case, while unusual, provide a clear illustration of a situation that could only be addressed by adhering to the call by the High Court in Backoffice Investments that ss 232 and 233 are to be read broadly and the imposition of judge-made limitations on their operation must be approached with caution.
An important point that emerges from the judgment of Campbell J is that the exercise by a member of a right conferred by the Act may potentially be contrary to the interests of the members as a whole. In other words, just because the impugned action involves the exercise by a member of a statutory right does not, of itself, mean that it cannot be oppressive. Whether that is the case needs to be determined in light of all relevant circumstances. Great care must be exercised when determining that question.
It is also noteworthy that Campbell J analysed the matter by reference to the actions that the NRMA was required to take upon being served with the statutory notice. In other words, his Honour analysed the obligations placed upon the NRMA to determine whether they constituted the “conduct of the company’s affairs”. The requirement that the NRMA conduct a general meeting was clearly a proposed act by the company within the meaning of s 232(b).
The interlocutory application before the Master sought that the notice issued by Mr Wallace under s 293 of the Act be set aside. The issue of the s 293 notices by Mr Wallace placed a legal obligation upon the company to comply with those notices. The question is whether the requirement imposed by the s 293 notices that audited financial statements and directors’ reports be prepared is “the conduct of a company’s affairs” within the meaning of s 232(a). When considering that issue, it is necessary to have regard to s 53. While s 53 operates on an inclusive, rather than exhaustive basis, it lists a great many matters that constitute “the affairs of a body corporate”.
Paragraph (a) of s 53 refers, amongst other matters, to the business, trading, transactions and dealings, profits and other income, receipts, losses, outgoings and expenditure of the body. The material sought by Mr Wallace, particularly the audited financial statements, will contain information about those matters. In that sense, the reports will concern or relate to the affairs of a body corporate. However, the reports will not themselves be the affairs of the body corporate in the sense of its profits, losses and so forth. The reports will also not be the profits, losses and the like of the body although they will refer to those matters.
In Australian Securities Commission v Lucas Drummond J held that a notice issued by the ASC to a firm of auditors under s 30(b) of the Australian Securities Commission Act 1989 (Cth) (the ASC Act) requiring production of its audit papers relating to a company relating to the “affairs of the body”.[18] The relevant provision of the ASC Act provided that the meaning of “affairs” was the same as “the affairs of the company” in s 260(1)(b) of the Corporations Law as defined by s 53 of the Corporations Law. The provisions of s 53 of the Corporations Law relied upon by Drummond J were in all material respects identical to what is now s 53 of the Act. Thus, the relevance of the reasoning of Drummond J is not affected by the repeal of the Corporations Law and the enactment of the Act. Paragraph (k) of s 53 of the Corporations Law (and now also s 53(k) of the Act) referred specifically to matters relating to or arising out of an audit and also the working papers or reports of an auditor concerning any of the matters referred to in a preceding paragraph of s 53.
[18] (1992) 36 FCR 165 at 184.
Drummond J observed that “[q]uite apart from these statutory provisions the concept of the affairs of a corporation is a very wide one indeed”.[19] His Honour supported that conclusion by reference to the decision of Helsham CJ in Eq in Cousins v Corporate Affairs Commission.[20] In that case his Honour held that questions asked in the exercise of a statutory investigative power about the work performed by an auditor were properly categorised as the affairs of the company. Helsham CJ in Eq did not rely on any statutory definition in reaching that conclusion. However, it is apparent from the judgment that the auditor may have had an ongoing role in advising the company on decisions that were the subject matter of the investigation. His Honour noted that information about advice provided by the auditor may be crucial to understanding why decisions were made by the company.
[19] Ibid.
[20] (1977) 3 ACLR 398 at 401-402.
I also note that s 53(a) of the Act is couched in different terms to s 30(b) of the ASC Act which was before Drummond J in Lucas. The latter provision referred to “specified books relating to the affairs of the body” whereas s 53(a) is concerned with the relevant affairs themselves, whether they be profits, losses, expenditure or so forth, rather than reports relating to those matters.
In the present case, the company is being required to prepare financial statements and have those statements audited and provided to Mr Wallace. The auditing process will provide an independent report upon the actions already undertaken by the company without the auditor having been integrally involved in its activities, in contrast to the role of the auditor in Cousins. Because the auditor will stand outside the company when reviewing its affairs, rather than be an element of its decision making as was the situation in Cousins, I do not consider that the preparation of audited financial statements will be within the scope of paragraph (a) of s 53.

I also take the same view in relation to paragraph (c) of s 53 for the same reason. The preparation of audited financial statements is not “the internal management and proceedings” of the company.
I turn to the requirement that director’s reports be prepared. Paragraph (a) of s 53 provides that the affairs of a body corporate include the “control” of the body. It may well be that the director’s reports deal with matters concerning the control of the company. However, for the reasons I have already given, I do not consider that will suffice to bring the reports within the scope of paragraph (a).
I take the same view in relation to the reference in paragraph (c) of s 53 to “internal management and proceedings”. While it is very likely that the director’s reports will refer to these issues, I do not consider that this will have the effect of making the reports themselves part of the affairs of the body.
I do not consider that any of the other paragraphs of s 53 are relevant to the present issue although it is necessary to give some consideration to the possible application of paragraph (k), to which I now turn.
As I have previously noted, paragraph (k) of s 53 refers to matters relating to or arising out of an audit and also the working papers or reports of an auditor concerning any of the matters referred to in a preceding paragraph of s 53.
I accept that if, for example, the auditor discovered an irregularity in the financial statements that might constitute “matters relating to or arising out of an audit”. However, that is not the present situation. The working papers or reports of an auditor only come within the scope of paragraph (k) if they concern any of the matters listed in the preceding paragraphs of s 53. As I have concluded that the other paragraphs do not apply, the reference to “working papers or reports” is not relevant.
While I have concluded that the requirement to produce audited financial statements and director’s reports is not an affair of a body corporate as defined in s 53, that section contains inclusive, rather than exclusive, definitions. Thus, something that is not specifically covered by s 53 may still be the “affairs of a body corporate”. The ultimate question is whether, regardless of s 53, the preparation and auditing of the financial statements and the compilation of the director’s reports will constitute “the conduct of a company’s affairs” in terms of s 232(a).
Free of any statutory definition, the words used in the phrase “the conduct of a company’s affairs” are ordinary English words. It is only at the margin that difficulty arises in their application. Of course, it is cases at the margin that have occupied the time of the courts over the years. Resort to the dictionaries confirms what I regard as the ordinary meaning. The Macquarie Dictionary relevantly defines “affairs” to mean “(1) anything done or to be done; that which requires action or effort; business; concern: an affair of great moment, the affairs of state”.[21] The Shorter Oxford Dictionary provides the definition “commercial or professional business”.[22] The same sources respectively and relevantly define “conduct” to mean “(2) direction or management; execution; the conduct of a business” and “(2) direction, management; handling, (3) skill in managing affairs (4) behaviour.”
[21] (4^th ed, 2005).
[22] (3^rd ed (with corrections), 1978).
These definitions confirm that the phrase “the conduct of a company’s affairs” will cover the full breadth of decision-making, management and performance relating to the functions and activities of the company, whatever those may be. However, as I have already discussed, the notices issued under s 293 by Mr Wallace seek information about the conduct of the company’s affairs but are not themselves part of that conduct. I therefore consider that satisfaction of the obligations placed upon the company by the notices does not constitute the conduct of its affairs within the meaning of s 233(a).
Counsel for Mr Wallace has supported her submission that the action of Mr Wallace in issuing the notices under s 293 does not constitute the conduct of the company affairs with the observation that s 232(c) makes specific reference to a resolution or proposed resolution of members or a class of members of a company. She submits that if the Parliament had intended that the issue of a notice should be within the scope of s 232 that could readily have been dealt with in a similar manner to s 232(c). The latter specifically provides that a resolution or a proposed resolution of company members may be the subject of an order under s 233.
While I do not regard this submission as decisive, it reinforces my view that the preparation and auditing of the financial statements and the compilation of the director’s reports will not constitute “the conduct of a company’s affairs”.
Is there a proposed act by or on behalf of the company?
Although the parties did not refer to s 232(b) in their submissions, that provision was decisive in the NRMA case. Campbell J held that the requirement imposed by the s 249D notice that the NRMA conduct a general meeting was a proposed act by the company and therefore within the scope of s 232(b). In the present case, the s 293 notice requires that the company prepare, or take steps to have prepared on its behalf, financial statements for the two relevant years and then arrange for those statements to be audited. I consider that those actions fall within the ordinary meaning of the words used in s 232(b). I can see no basis upon which the preparation of financial statements and the auditing of those statements on behalf the company can be distinguished from the calling and conduct of a general meeting considered by Campbell J.
Does s 232(d) or s 232(e) apply?
Due to my conclusion that the obligation placed upon the company under s 293 to prepare and have audited the reports sought by Mr Wallace is a proposed act by or on behalf of the company within the meaning of s 232(b), it is necessary to consider whether the requirements of either s 232(d) or (e) have been satisfied.
I agree with the Master that s 293 does not require a shareholder to have any particular reason for issuing a notice under that provision. However, a question arises as to whether a notice might be set aside under s 232(d) or s 232 (e).
Campbell J considered in the NRMA case that pointless expenditure would be contrary to the interests of the members as a whole. While the expenditure per head would have been less than $1, the total would have exceeded $1 million. There is no information before this Court as to the likely cost of the preparation of audited financial reports for the company. Whether that will require significant work in addition to that which has been done, or will be done, by Mr McPharlin for the purposes of the share valuation exercise is also unknown. Nevertheless, it has not been contended that the cost of preparing the audited financial statements would be insignificant and I proceed on that basis. However, I suspect that preparation of the director’s reports would not involve a significant cost beyond that incurred in preparing the audited financial statements.
The fundamental points made by Ms Reuther are that the financial position of the company in the years ending 30 June 2019 and 30 June 2020 is not relevant to the valuation of the shares as at 21 October 2017. Thus, she will ultimately bear the cost of the report preparation as the remaining shareholder. Against that, Mr Wallace contends that the question of whether his conduct is contrary to the interests of the members as a whole must be approached by reference to the interests of an “individual hypothetical member” as applied by Barrett J in Goozee v Graphic World Group Holdings Pty Ltd.[23]
[23] (2002) 170 FLR 451 at [52].
Further to that submission, Mr Wallace contends that Ms Reuther’s argument that expenditure upon the reports would be pointlessly wasteful demonstrates that she is approaching the issue from her subjective viewpoint rather than from the objective position of an individual hypothetical member.
In Goozee Barrett J followed the decision of the Full Court of this Court in Reid v Bagot Well Pastoral Co Pty Ltd.[24] In Reid Debelle J, with King CJ and Millhouse J agreeing, held that the phrase “the company as a whole” does not mean the company as a commercial entity, as distinct from its shareholders, but rather the shareholders as a whole. Thus, when considering a company resolution, the question is whether the proposal is, in the honest opinion of those who voted in its favour, for the benefit of an individual hypothetical member.[25]
[24] (1993) 61 SASR 165
[25] Ibid at 174-175. See also Greenhalgh v Arderne Cinemas Ltd [1951] Ch 286.
A primary contention advanced by the respondent is that he had a statutory right to issue the notices under s 293 and his purpose in doing so is irrelevant. That contention is not relevant to the possible application of s 232(d). I accept that that in the circumstances referred to at [9] to [11], which essentially amount to an allegation (albeit untested) that company funds have been diverted for private purposes without the creation of a loan account, a hypothetical individual shareholder would hold a genuine concern about the ongoing financial management of the company.
In view of the allegation that company funds have been diverted, it seems to me that as part of the audit process, enquiries would need to be made as to whether any of the impugned payments ought to be shown in the financial statements as monies owed to the company even though the allegation of use of company funds for private purposes relates to payments made some years ago.
For that reason, the concern of Mr Wallace about the alleged diversion of company monies in earlier years is relevant to his demand that audited financial statements be prepared for the 2019 and 2020 financial years. Accordingly, I do not consider that the issue of the s 293 notices was contrary to the interests of the members of the company as a whole within the meaning of s 232(d).
I turn to the possible application of s 232(e). In Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd Spigelman CJ held in relation to the predecessor provision to s 232(e), being s 260(1) of the Corporations Law, that:[26]
The addition of the words “unfairly prejudicial to” and “unfairly discriminate against” to the original statutory reference to “oppressive”, indicates an intention that the jurisdiction should not be confined by technical distinctions.
[26] [2001] NSWCA 97 at [4].
In DynastyPty Ltd v Coombs[27] the Full Court of the Federal Court (comprising Spender, O’Loughlin and Branson JJ) adopted the explanation previously given by Young J in Morgan v Flers Avenue Pty Ltd that the test for a breach of s 260 of the Corporations Law was: [28]
… whether objectively in the eyes of a commercial bystander, there has been unfairness, namely conduct that is so unfair that reasonable directors who considered the matter would not have thought the decision fair.
[27] (1995) 59 FCR 122 at 130.
[28] (1986) 10 ACLR 692 at 704.
In view of the circumstances that I have referred to at [9] to [11], I do not consider that a commercial bystander would objectively consider the action of Mr Wallace in issuing the s 293 notices to be unfair. While it is true that Ms Reuther will indirectly bear the cost of the preparation of the audited financial statements, the affidavit material placed before the Court demonstrates that as a continuing shareholder Mr Wallace holds a legitimate concern about the financial management of the company. Whether or not his concerns are ultimately substantiated is not to the point. The matters he has raised provide a legitimate basis for enquiry by a shareholder.
For completeness, I record my view that the Master correctly concluded that the Act draws no distinction between a shareholder who holds shares on trust and a shareholder who holds a beneficial interest in their own right. Such a distinction would prevent scrutiny of a company under s 293. That is because if a trustee cannot exercise rights under s 293, no other person could do so as the beneficiaries of a shareholding trust are not themselves shareholders.
Exercise of the discretion under s 233
In view of my finding that the issue of the s 293 notices by Mr Wallace was not contrary to the interests of the members as a whole nor was it oppressive, unfairly prejudicial or unfairly discriminatory, the occasion for the exercise of the discretion to grant relief under s 233 does not arise. If I am wrong in that conclusion, I would nevertheless decline to grant relief under s 233 for the reasons I have given at [74] to [78].
Conclusion
As the decision made by the Master was interlocutory in nature, Ms Reuther required leave to appeal under r 213.1 of the Uniform Civil Rules 2020 (SA). The appeal raised serious questions that were rendered more difficult due to the lack of any direct judicial authority. Ms Reuther’s case was also clearly arguable. Accordingly, I granted her leave to appeal but, for the reasons set out above, I dismissed her appeal against the decision of the Master.