Rosehill T1 Pty Ltd (ACN 165 447 441) v Noah's Rosehill Waters Pty Ltd (ACN 165 463 061) - [2023] WASC 425

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION:   ROSEHILL T1 PTY LTD (ACN 165 447 441) -v- NOAH'S ROSEHILL WATERS PTY LTD (ACN 165 463 061) [2023] WASC 425
CORAM:   FORRESTER J
HEARD:   18 OCTOBER 2023
DELIVERED          :   8 NOVEMBER 2023
FILE NO/S:   COR 181 of 2022
BETWEEN:   ROSEHILL T1 PTY LTD (ACN 165 447 441)
First Plaintiff
NOAH'S GROUP INVESTMENT PTY LTD (ACN 160 411 405)
Second Plaintiff
WEST ANGUS PTY LTD (ACN 165 690 522)
Third Plaintiff
GALAXY BRIDGE INVESTMENT PTY LTD (ACN 165 690 531)
Fourth Plaintiff
WEALTHY WAY INVESTMENT PTY LTD (ACN 165 690 540)
Fifth Plaintiff
AND
NOAH'S ROSEHILL WATERS PTY LTD (ACN 165 463 061)
Defendant

Catchwords:

Corporations - Application to inspect company books and records under s 247A of the Corporations Act 2001 (Cth) - Whether applicant is acting in good faith and the inspection is to be made for a proper purpose

Legislation:

Corporations Act 2001 (Cth)

Result:

Application dismissed

Category: B

Representation:

Counsel:

First Plaintiff	:	T Houweling & T Millar
Second Plaintiff	:	T Houweling & T Millar
Third Plaintiff	:	T Houweling & T Millar
Fourth Plaintiff	:	T Houweling & T Millar
Fifth Plaintiff	:	T Houweling & T Millar
Defendant	:	M L Bennett & A J Tharby

Solicitors:

First Plaintiff	:	Cornerstone Legal
Second Plaintiff	:	Cornerstone Legal
Third Plaintiff	:	Cornerstone Legal
Fourth Plaintiff	:	Cornerstone Legal
Fifth Plaintiff	:	Cornerstone Legal
Defendant	:	Bennett

Cases referred to in decision:

Czerwinski v Syrena Royal Pty Ltd [No 1] [2000] VSC 125
Enares Pty Ltd v Nimble Money Ltd [2022] FCAFC 126; (2022) 294 FCR 31
In the matter of Tolco Pty Ltd [2016] NSWSC 1069
Lucy v Prescribing Biochemists Pty Ltd [2000] NSWSC 1137
Mesa Minerals Ltd v Mighty River International Ltd [2016] FCAFC 16; (2016) 241 FCR 241
Praetorin Pty Ltd v TZ Ltd [2009] NSWSC 1237
Re Claremont Petroleum NL [No 2] [1990] 2 Qd R 310
Re Style Ltd; Merim Pty Ltd v Style Ltd [2009] FCA 314
Rowland v Meudon Pty Ltd [2008] NSWSC 381
Smartec Capital Pty Ltd v Centro Properties Ltd [2011] NSWSC 495

FORRESTER J:

Introduction

This is an application by the plaintiffs for an order pursuant to s 247A of the Corporations Act 2001 (Cth) (Act) to enable them to inspect the books of the defendant.
For the reasons which follow, the application is dismissed.

Application

The amended originating process seeks inspection of:
(i)Profit and loss statements for the period of October 2019 to August 2022;
(ii)Payments made to the Directors of Noah's Rosehill Waters Pty Ltd for the period October 2019 to August 2022 by way of dividend or any other payment;
(iii)Payments made from Noah's Rosehill Waters Pty Ltd to RWM Property Group Pty Ltd between the period October 2019 to August 2022;
(iv)Documents pertaining to the valuations over land owned by Noah's Rosehill Waters Pty Ltd between the period October 2019 to August 2022;
(v)Plans of subdivision of the land owned by Noah's Rosehill Waters Pty Ltd;
(vi)Contracts between Noah's Rosehill Waters Pty Ltd and RWM Property Group Pty Ltd for the development of the Rosehill Estate between the period October 2019 to August 2022; and
(vii) Payments made to Alceon Group No 50 Pty Ltd (ACN 614 763 914) under any mortgage.
The application was originally brought on behalf of the first to fifth plaintiffs, but at the hearing of the matter, the proceedings on behalf of the first plaintiff were discontinued. Any reference to 'the plaintiffs' in these reasons means the second to fifth plaintiffs.

Factual background

The following factual background is not disputed.
The defendant was registered in 2013. It is a property development company whose primary activity was the development of land known as 'Rosehill Estate' in South Guildford.
Ting Lee was a director of the defendant between August 2013 and December 2019. She is not a current member of the defendant. Rosehill T1 Pty Ltd (Rosehill T1), of which Ms Lee was a director, was an initial investor in the defendant, acquiring a 51% interest in the defendant. However, at some point[1] Rosehill T1 divested all of its shares in the defendant to the second, third, fourth and fifth plaintiffs.
[1] Ms Lee thought it was in about 2014: ts 46.
In 2019, Alceon Group No. 50 Pty Ltd (Alceon 50) was the first‑ranking secured creditor of the defendant and was financing the development of the Rosehill Estate pursuant to a $45 million facility (the First Facility). The defendant had unsecured loans from the second to fifth plaintiffs.
On 20 March 2019, the defendant obtained additional funding (the Second Facility) from the second plaintiff, which ultimately became a second‑ranked secured creditor of the defendant.
In about October 2019, the defendant defaulted on its obligations under the First Facility, and Alceon 50 appointed administrators, who reported to creditors on 13 November 2019 (the Administrators' Report).
The Administrators' Report states:[2]
[2] Affidavit of Andrew James Fatin affirmed 15 May 2023, 379 (AFJ-7).
Our preliminary view is that the Company was likely insolvent as at 8 October 2019, the date which the Company was not able to pay the amount of $4.3m to remedy the LVR breach, and remained insolvent at all times until the date of our appointment on 17 October 2019.
Based on the estimated date of insolvency, our calculations suggest that any claim for insolvent trading would be negligible and not commercially viable to pursue.
Due to breaches of Directors duties identified we believe that potential claims for recovery of these breaches may total circa $4.7m. Saying that we understand that the financial position of the relevant claimants is such that any recovery will be minimal at all.
We consider that certain former directors may have committed civil breaches of some or all of the following sections of the Act:
●section 180 in not taking due care and diligence in managing the affairs of the Company including fraudulent activities;
●section 181 in not exercising their powers and discharging of duties as a director in good faith and in the best interests of the corporation and for a proper purpose by entering into uncommercial arrangements;
●section 182 for improperly using of their position as director to gain an advantage and for causing detriment to the Company as a result of uncommercial transactions entered into both personally and capacity as a related party.
●Section 184 for being dishonest conduct (sic)
●Section 286 in respect of destroying books and records of the Company.
We intend to lodge a report with the ASIC in accordance with Section 438D of the Act reporting to the potential breached of Director's (sic) duties prior to the second meeting of creditors to be held on 21 November 2019.
Following a vote at the second meeting of creditors, the defendant became the subject of a deed of company arrangement (DOCA) on 9 December 2019. Alceon 50 was the proponent. Before that date, the third, fourth and fifth plaintiffs assigned their unsecured loans to the second plaintiff, thus joining in its second-ranking security.
As at 9 December 2019, the amount due to Alceon 50 under the First Facility was about $53.1 million, and the amount due under the Second Facility was about $30.9 million.
Further, unsecured creditors were owed about $15.8 million, with an additional contingent unsecured claim for $16 million. The unsecured creditors became beneficiaries of the Creditor's Trust, established under the DOCA. Save for a small initial contribution paid and distributed by the deed administrators in accordance with the DOCA, no funds have been paid into the Creditors' Trust for the benefit of the unsecured creditors.
The DOCA was fully effectuated by 30 December 2019. As a result, Damien Cronin and Morris Symonds were appointed as directors, being representatives of Alceon 50. Two days after Mr Cronin was appointed a director, he was appointed 'Governing Director for life', as that term is defined in the constitution of the defendant (Governing Director). Among other things, the Governing Director is entitled to fix their own remuneration, whether by salary, commission, participating in profits or other benefits, or any combination of these.
The plaintiffs will only recover amounts due under the Second Facility if the Rosehill Estate development project generates sufficient revenue to discharge the First Facility. The defendant will only transfer funds to the Creditors' Trust, and the unsecured creditors will only receive a return if the Rosehill Estate development project generates sufficient revenue to discharge the First Facility and the Second Facility.
Shareholders of the defendant will only receive a return if the surplus of the Rosehill Estate development project revenue exceeds the defendant's existing liabilities and obligations under the DOCA, which includes having made payments to the Creditors' Trust so that the unsecured creditors are paid in full.
On 1 September 2022, the solicitors for the first to fifth plaintiffs wrote to the defendant's solicitors seeking copies of the defendant's constitution and any powers of attorney signed by any of the first to fifth plaintiffs. The penultimate paragraph of that letter states:[3]
… our client has invested significant funds into the company and hereby gives notice that it intends to use its powers under the provisions of the Corporations Act to seek audited accounts of the company and obtain such documents as the Corporations Act permits so that it is able to properly understand the financial affairs of the company.
[3] Affidavit of Ting Lee affirmed 16 February 2023, 162 (TL-7) (First Affidavit).
On 14 September 2022, the solicitors for the first to fifth plaintiffs again wrote to the defendant's solicitors seeking, in effect, to inspect the documents the subject of this application. In an exchange of emails that same day, the solicitor for the first to fifth plaintiffs wrote to the solicitor for the defendant in the following terms:[4]
You should have no doubt that our client feels oppressed at not having a role in the company, seeing funds being paid to Directors and the Development Company and wishes to appoint her own Directors for the purpose of oversight of the company to ensure profits are able to be declared as opposed to money spent on uncommercial interest rates, and paid to the Development Company in which the Directors of [the defendant] have a sole interest, and that any directors remuneration is reasonable.
We understand that alternate and cheaper funding sources for the loans can be obtained by [the defendant] and that the premium interest paid to Alceon Group No 50 under the Mortgage cannot continue to be justified.
All this is preventing our client from being paid a return on their investment of $30 million.
Further, all of the matters above ultimately are relevant to questions under Section 237 or 233 of the Corporations Act. We would be grateful for cooperation, our client has a right to know what is happening with their significant investment, and for that reason requests inspection of the books of the Company.
[4] First Affidavit, 172 - 173 (TL-10).
On 21 September 2022, the defendant's solicitors refused the request for inspection.
The proceedings were commenced on 4 October 2023.
Ms Lee became a director of each of the second to fifth plaintiffs on 13 January 2023.
The originating process was amended on 22 February 2023 to specify the exact documents which the plaintiffs sought to inspect under s 247A of the Act.

Evidence

Affidavit of Ting Lee affirmed 16 February 2023 (First Affidavit)

Ms Lee deposed that:
(1)she became a director of each of the second to fifth plaintiffs 'for the purpose of dealing with these proceedings';[5]
(2)the directors of the defendant have failed to keep the plaintiffs informed of decisions and matters relevant to the defendant since December 2019;[6]
(3)that the defendant has not reported to shareholders on the payment down of the First Facility, the remuneration paid to directors, or whether the defendant has declared profits;[7]
(4)the defendant appears to have appointed RWM Property Group Pty Ltd (RWM) as the development company of Rosehill Estate;[8]
(5)RWM's website depicts Rosehill Estate as the company's only project and fails to specify details of any others;[9] and
(6)the defendant has not disclosed its contracts with RWM, or the remuneration paid to RWM by the defendant.[10]
[5] First Affidavit [2].
[6] First Affidavit [7].
[7] First Affidavit [17].
[8] First Affidavit [18].
[9] First Affidavit [21].
[10] First Affidavit [20].
Ms Lee also deposed that she believes the value of Rosehill Estate has increased such that it would be able to be refinanced on more favourable terms than the First Facility.[11] However, objection was taken to this part of Ms Lee's affidavit by the defendant, on the basis that there was no foundation for Ms Lee's belief as to the value of Rosehill Estate or that a more favourable interest rate was available.
[11] First Affidavit [16].
Despite having been put on notice as to the lack of evidence as to the value of the land,[12] and the orders made by Master Sanderson on 15 June 2023 that the evidence at the hearing shall be given by affidavit, the plaintiffs sought leave to adduce additional oral evidence in examination in chief as to the foundation of Ms Lee's opinion as to the value of Rosehill Estate.
[12] Defendant's outline of submissions filed 31 July 2023 [20] (Defendant's submissions).
I was informed that the extent of that proposed additional evidence was that Ms Lee was aware of the amount of an offer made for purchase of Rosehill Estate prior to the DOCA being entered into, and that she was aware of the market increase in Perth:
… as a consequence of the general market increase following the lifting of COVID in particular in Western Australia.[13]
[13] ts 21.
In my view, Ms Lee's belief as to the value of Rosehill Estate without any greater foundation than that identified would be speculative. Accordingly, I ruled that the proposed additional evidence was inadmissible and I refused leave to lead it.
As to the issue of whether a more favourable interest rate is available to the defendant, the plaintiffs were again placed on notice as to the lack of evidence supporting her opinion.[14] Again, notwithstanding the orders of Master Sanderson made on 15 June 2023, the plaintiffs sought to adduce additional evidence regarding this matter.
[14] Defendant's submissions [27].
I was informed that the extent of that proposed additional evidence was that the basis of Ms Lee's opinion was that:
… from her experience in the market dealing with business loans … the amount of the interest that was being paid to the Alceon Group was approximately double that of [general] bank interest.[15]
[15] ts 21.
In my view, the complexities of obtaining finance in the case of a development such as Rosehill Estate, having regard to the financial position of the defendant, renders comparison to general bank interest rates of no relevance. In the absence of any evidence as to interest rates available in relation to this particular development, or at least a development of this type, I considered Ms Lee's opinion as to the availability of more favourable interest rates to be lacking foundation and therefore inadmissible. Accordingly, I refused leave to lead the additional evidence.

Affidavit of Ting Lee affirmed 9 June 2023 (Second Affidavit)

It is appropriate to set out the relevant passages of Ms Lee's Second Affidavit in full:
[2] I make this affidavit in response to the affidavit of Andrew James Fatin sworn on 15 May 2023 (Fatin affidavit) and in support of the Plaintiffs' application for inspection of the Defendant's books pursuant to section 247A of the Corporations Act 2001 (Cth).
RWM Property Group Pty Ltd (RWM)
…
[4]Mr Fatin is a director of RWM together with Morris Symonds (Mr Symonds) and Anthony Perrin (Mr Perrin) who were appointed as directors on 12 December 2014 and 20 December 2019 respectively. A copy of the current and historical extract for RWM is attached hereto…
[5]The current shareholding for RWM is listed on the above extract as follows:
(a) Apaliop Pty Ltd (ACN 117 482 201) (Apaliop) holding two ordinary shares;
(b)Crown Line Pty Ltd (ACN 094 595 203) (Crownline) holding three ordinary shares; and
(c)Alceon GT Pty Limited (ACN 122 362 458) (Alceon GT) holding five ordinary shares
(the RWM shareholders)
Attached hereto … are copies of the abovementioned company ASIC Extracts.
[6]There appears to be irregularly common directors between the RWM Shareholders and RWM, namely:
(a)Mr Perrin is both a director and 50% shareholder of Apaliop and a director of RWM;
(b)Mr Fatin is the Director and Company Secretary of Crownline holding 100 Class 'A' shares held against a total of 130 shares, and a director of RWM; and
(c)Mr Symonds is a director of Alceon GT, a director of RWM and is a director of the Defendant company …
[7]The Plaintiffs have not been provided with any financial records or information in relation to the remuneration rate for the directors of RWM, neither have they been provided with any records with respect to outgoing payments from the Defendant to RWM.
[8]Mr Symonds, being a director of the Defendant and a director of a shareholder company in RWM (as the development company for the Defendant) presents the Plaintiffs with legitimate concerns about the transparency of the Defendant's operation under the new arrangements imposed by the Deed of Company Arrangement.
[9]RWM likely receives funds from the Defendant as payment for the development of the Rosehill Waters Estate. Given the irregular number of common directors between those two entities, including directors which are also primary shareholders, there is a genuine concern in relation to the company accounts which properly require inspection.
[10]There is no ulterior or collateral commercial purpose to the section 247A application other than the reasons described in this affidavit. The Applicants are shareholder entities that have (and continue to hold) secured creditor status as second ranking creditors.
[11]Given that the respective Applicants have not divested its shareholding in the Defendant, I believe that the Applicants are able to bring the present application.
Previous director breaches
[12]The Administrators' Report to Creditors dated 13 November 2019 outlines several alleged breaches by the prior directors of the Defendant, Mr Peter Burke and Ms Sandra Klarich. This included a period of insolvent trading in October 2019 contrary to section 558H of the Corporations Act 2001.
[13]The Plaintiffs consider that there may be a further cause of action and remedy available under the Corporations Act 2001, such as a derivative action against a former director. The section 247A application is made to progress that line of inquiry and to determine whether the Defendant, by its agents, has operated in good faith to return part of the $30 million invested by the Plaintiffs.
The defendant also objected to passages in the Second Affidavit. To the extent that Ms Lee characterised the arrangements of the defendant and RWM as 'irregular' or sought to depose as to the legitimacy of any concern about the defendant's affairs, the plaintiff conceded that Ms Lee was deposing only as to her belief, which was only admissible insofar as it had any relevance to the issue of good faith or proper purpose. On that basis I received the evidence but indicated I would consider what weight, if any, to give it in due course.

Cross-examination of Ting Lee

Despite the fact that she was a director of the defendant until the DOCA was entered into, Ms Lee was unable to demonstrate any substantial understanding of the arrangements entered into by the defendant at that time. She also appeared to be vague about a number of the matters on which she was called to give evidence.
I have had regard to the possibility that, on occasion, Ms Lee encountered language barriers, had difficulty hearing over the video link, or was nervous. However, even with such considerations, Ms Lee's understanding of many of the matters about which she was cross‑examined appeared to be limited, and even less than was articulated in the First Affidavit and Second Affidavit.
Contrary to what was stated at paragraph [12] of her Second Affidavit, Ms Lee claimed that she had never read the Administrator's Report.[16] The following exchange then took place:
- - at the time of the deed of company arrangement, how much was owing to the plaintiffs in these proceedings?
I don't remember the numbers.
…
Was it in the order of $30 million?
Yes, that is the amount we put in.[17]
[16] ts 26.
[17] ts 26 - 27.
Ms Lee was unable to say how much of that $30 million was an investment and how much was debt.[18]
[18] ts 29.
Ms Lee said that it was a concern to her that the directors of RWM are very similar to 'people in Alceon'. When asked if that would be expected in any corporate group, she said it was not.[19] She said that her experience in commercial developments was in China, but she had not been a director of any companies which had been engaged in commercial land development in Australia. She said she is a director of other companies in Australia, which are involved in the management of real estate, in Sydney. She had last visited Western Australia in 2018.[20]
[19] ts 33.
[20] ts 34.
Ms Lee was asked whether she understood that one of the reasons she sought to inspect the company books was to ascertain whether or not there would be a cause of action that could be prosecuted against former directors, and she said she did.[21]
[21] ts 32.
Ms Lee accepted that the shareholders would not expect a return if the company was 'too indebted', but she did not know if it was.[22] She said she had not undertaken a valuation of the land, and claimed that she had not seen the balance sheet which was annexure AJF‑10 to Mr Fatin's affidavit.[23]
[22] ts 35.
[23] ts 35.
Ms Lee was unable to say whether she had ever seen Mr Fatin's affidavit before, saying either that she had not seen it[24] or that she could not remember seeing it.[25] Again, this was contrary to paragraph [2] of the Second Affidavit.
[24] ts 27, 36.
[25] ts 38, 47.
Ms Lee was referred to paragraph [13] of the Second Affidavit, and the following exchange took place:[26]
Which director do you - do the plaintiffs consider may be the subject of a derivative action? - - The current directors.
So not a former director, the current directors? - - Yes
And what's the basis for asserting that - a belief that there may be a further cause of action and remedy against the current directors? - - Because I don't know anything that's happening to the company under the current directors.
So your affidavit is wrong when it refers to a former director; is that right? - - Yes
Okay. Why didn't you include the current director at that stage? - - I don't know.
[26] ts 40.
Ms Lee was adamant that she had previously emailed Mr Fatin making a request for the company to provide financial reports (she was unclear whether that was a formal request under s 293 of the Act or not) but said she could not find the email. She said she sent it in 'maybe 2020'. However, she accepted she could not have made such a request as shareholder until she became a director of the plaintiffs in January 2023.[27]

Affidavit of Andrew James Fatin sworn on 15 May 2023 (Fatin Affidavit)

[27] ts 41.

In addition to matters which are not in dispute and are set out above, Mr Fatin deposed that:
(1)he is personally involved in oversight of the preparation of the defendant's accounts, and produced a balance sheet of the defendant (unaudited as at 30 June 2022);[28]
(2)there is no prospect of the Rosehill Estate development project generating sufficient revenue to pay out the First Facility and the Second Facility in full, so there is no prospect the defendant will make any payments to the Creditors' Trust or, it follows, the shareholders;[29]
(3)as at 15 May 2023, the defendant had not received any notice under s 293 of the Act.[30]

Cross-examination of Andrew Fatin

[28] Fatin Affidavit [20].

[29] Fatin Affidavit [21].

[30] Fatin Affidavit [23].

Mr Fatin acknowledged that the shareholders of the defendant had not been provided with any financial information of the defendant,[31] except for that which was annexed to his affidavit.
[31] ts 55, 63.
On numerous occasions, counsel for the plaintiffs sought to cross‑examine Mr Fatin as to matters which were the subject of the application, such as the amounts paid to Alceon 50 in service of the mortgage, the valuations carried out by the defendant of Rosehill Estate, interest rates being charged by Alceon 50, and remuneration paid to RWM.
When the defendant objected to such questions, counsel for the plaintiffs was asked to identify on what basis he was entitled to seek to elicit such information, given that it was the very subject matter of the application. Counsel's only articulated basis was that Mr Fatin had sworn an affidavit and put himself 'on record' and was able to answer the questions.[32] I did not accept that submission and ruled those questions to be impermissible.
[32] ts 54, 58, 59 - 62.
The ASIC Current Historical and Organisational Extract of the defendant was tendered.

Statutory framework and legal principles

Section 247A(1) of the Act states:
(1)On application by a member of a company or registered scheme, the Court may make an order:
(a) authorising the applicant to inspect books of the company or scheme; or
(b)authorising another person (whether a member or not) to inspect books of the company or scheme on the applicant's behalf.
The Court may only make the order if it is satisfied that the applicant is acting in good faith and that the inspection is to be made for a proper purpose.
(2)A person authorised to inspect books may make copies of the books unless the Court orders otherwise.
(3)A person who:
(a)is granted leave under section 237; or
(b) applies for leave under that section; or
(c)is eligible to apply for leave under that section;
may apply to the Court for an order under this section.
(4) On application, the Court may make an order authorising:
(a)the applicant to inspect books of the company; or
(b)another person to inspect books of the company on the applicant's behalf.
(5)The Court may make the order only if it is satisfied that:
(a)the applicant is acting in good faith; and
(b) the inspection is to be made for a purpose connected with:
(i)applying for leave under section 237; or
(ii)bringing or intervening in proceedings with leave under that section.
(6)A person authorised to inspect books may make copies of the books unless the Court orders otherwise.
Relevantly, an application pursuant to s 247A of the Act may be made by a member of the company.[33]
[33] Act s 247A(1).
The court may make an order authorising the applicant to inspect books of the company, or another person to inspect books of the company on the applicant's behalf.[34] 'Books' are defined by s 9 to include a register, any other record of information, financial reports or records, and a document.
[34] Act s 247(4).
Section 247A(1) is not limited by s 247A(5); the latter only applies to an application made under s 247A(3).[35]
[35] Lucy v Prescribing Biochemists Pty Ltd [2000] NSWSC 1137 [3] (Hamilton J).
If the court makes an order under s 247A, it may make any other order it considers appropriate, including limiting the use which may be made of the information obtained during inspection and/or limiting the right of the person inspecting to make copies.[36]
[36] Act s 247B.
Both parties accepted that the relevant principles are as summarised by Katzmann J (with whom Siopis and Gilmour JJ agreed) in Mesa Minerals Ltd v Mighty River International Ltd:[37]
[37] Mesa Minerals Ltd v Mighty River International Ltd [2016] FCAFC 16; (2016) 241 FCR 241 [22].
It is sufficient at this point to note the following matters drawn from the convenient summary given by Debelle J in Acehill Investments Pty Ltd v Incitec Ltd [2002] SASC 344; 223 LSJS 97 at [29] and the additional principles identified by Gordon J in Hanks v Admiralty Resources NL [2011] FCA 891; (2011) 85 ACSR 101 at [32], both of which judgments were referred to by the primary judge at different points in his reasons:
(1)The stipulation that an application be made in good faith and for a proper purpose is a composite notion rather than two distinct requirements: Knightswood Nominees Pty Ltd v Sherwin Pastoral Company Ltd (1989) 7 ACLC 536 at 540–541. That is to say, as Brooking J put it in Knightswood at 541:
[T]he reference to good faith colours and so reinforces the requirement of proper purpose. Acting in good faith and inspecting for a proper purpose means acting and inspecting for a bona fide proper purpose. It is as if the case was one of hendiadys.
(2)Good faith and proper purpose must be proved objectively: Acehill, citing Barrack Mines Ltd v Grants Patch Mining Ltd [1988] 1 Qd R 606 (Full Court) (Barrack Mines Appeal) and Knightswood supra. See also the discussion in C Mantziaris, 'The member's right to inspect the company books: Corporations Act, s 247A' (2009) 83 ALJ 621 at 628–9.
(3)'Proper purpose' means a purpose connected with the proper exercise of the rights of a shareholder as shareholder and not, for example, as a litigant in proceedings against the company or as a bidder under a takeover scheme: Cescastle Pty Ltd v Renak Holdings Ltd (1991) 9 ACLC 1333 at 1335.
(4)The onus of proof is on the applicant: Quinlan v Vital Technology Australia Ltd (1987) 5 ACLC 389 at 393.
(5)An applicant who has a significant holding and who has been a shareholder for 'some considerable time' will more easily discharge the onus than one who has recently acquired a token holding: Quinlan at 393.
(6)It is not necessary that the applicant show that its interests are different to those of other shareholders: Yara Australia Pty Ltd v Burrup Holdings Ltd [2010] FCA 1273; 80 ACSR 641 at [116].
(7)Nor is it necessary that the applicant have sufficient evidence to bring or make out an action (Praetorin Pty Ltd v TZ Ltd [2009] NSWSC 1237; 76 ACSR 236 at [40]); it is enough that the issue raised by the applicant is 'substantive and not fanciful', not 'artificial, specious or contrived': Re Style Ltd; Merim Pty Ltd v Style Ltd [2009] FCA 314; 255 ALR 63 at [66]–[67].
(8)Pursuing a reasonable suspicion of breach of duty is a proper purpose: McNeill v Hearing & Balance [2007] NSWSC 942 at [17] citing Barrack Mines Ltd v Grants Patch Mining Ltd (1987) 6 ACLC 97 and the judgment on the unsuccessful appeal: supra.
(9)Provided that the applicant’s primary or dominant purpose is a proper one, it is not to the point that an inspection might benefit the applicant for some other purpose: Unity APA Ltd v Humes Ltd(No 2) [1987] VR 474 at 480; Barrack Mines Appeal at 615; Cescastle at 1335.
(10)Applicants do not necessarily lack a proper purpose merely because they are hostile to other directors: Humes at 480.
(11)Neither the fact that an applicant may have had sufficient information earlier nor the fact that an applicant may have other means of obtaining the information is detrimental to an application under the section: McNeill at [23]–[25].
(12)The procedure under s 247A is not intended to be as wide-ranging as discovery so that the general rule is that inspection will be limited to such documents as evidence the results of board decisions, rather than all board papers leading to decisions, but there may be occasions when it is proper to permit inspection of board papers: Acehill at [31].
(13)The Court has a residual discretion whether to order inspection: Humes at 481.

Plaintiffs' submissions

In written submissions, the plaintiffs submitted that they hold genuine concern with respect to the current and past dealings of the defendant by its company officers.[38] It was argued that the plaintiffs seek to investigate the nature and substance of breaches perpetrated by former and/or current directors of the defendant,[39] and they rely on the Administrator's Report as establishing an objective and rational basis for investigation.[40]
[38] Plaintiffs' written submissions filed 6 July 2023 [15] (Plaintiffs' submissions).
[39] Plaintiffs' submissions [23].
[40] Plaintiffs' submissions [25].
The plaintiffs also contended that a statutory derivative action may also be open to them as a consequence of the conduct of the directors:[41]
On its face, the historical breaches of the Defendant directors (sic) constitute a case for investigation consistent with the authorities. Further investigation in respect of the extent to which those breaches have impacted on the value of the Estate is appropriate and necessary to determine the prospects of bringing a derivative action.
[41] Plaintiffs' submissions [33].
The third submission was that there is a case for investigation, namely to properly understand:
(1)the level of remuneration paid to RWM by the defendant for property development services received by directors of RWM;
(2) the nature of the relationship between Alceon 50 and RWM in light of the common directors with apparent conflicting interests; and
(3)whether the current directors of the defendant are acting in the best interests of the company having regard to their occupation of apparently conflicting positions.[42]
[42] Plaintiffs' submissions [34].
In oral submissions, it was submitted that:
… the mere fact of common directors when those common directors have to act in each other's best interests and there's an interposing company, RWN Property Group … does give rise to a reasonable suspicion on the part of the investor as to whether or not that company RWM Property Group has and is receiving payments of a certain nature to siphon away from [the defendant] amounts of money.[43]
[43] ts 15.
This submission was developed in closing to allege that there is a question properly put in respect of whether the company directors have acted in breach of their duties as set out in s 180 to s 183 of the Act.[44]
[44] ts 72, 79.
As to Ms Lee's evidence, counsel suggested that she was 'hesitant' and even 'nervous', but submitted that memory can vary and that she ought to have been regarded as doing her best to assist the court. As to her reliability, counsel submitted I should rely on Ms Lee's affidavit evidence on the basis that she could not recall matters in her oral evidence.[45]
[45] ts 74 - 76.
When asked to precisely articulate the dominant purpose of the application, counsel said:[46]
The dominant purpose is to establish that the directors of the defendant are carrying out their duties consistent with the requirements of the Corporations Act for a proper purpose, in good faith, making decisions as to how contracts might be allocated to which entities and how - or whether or not there was a requirement to have allocated those contracts to that other entity, and here I'm speaking, of course, of RWM, as opposed to undertaking the work itself.
[46] ts 78.
However, when pressed as to how some of the documents sought to be inspected related to that purpose, counsel added that the other aspect was that the directors of the defendant needed to properly keep the value of the property and the funding facility under review.[47]
[47] ts 79 - 80.

Defendant's submissions

The defendant submitted that the plaintiffs have not been established to be acting in good faith and for a proper purpose, because none of the purposes identified by them are supported by the evidence adduced by the plaintiffs.
The defendant submitted that, in circumstances in which there is no credible prospect of recovery against former directors, the plaintiffs have not identified a case for investigation for the purposes of s 247A. Further, in circumstances in which the plaintiffs have not sought any documents relating to the conduct of the former directors, it cannot be concluded that a genuine purpose of the application is to consider the prospect of derivative action.[48]
[48] Defendant's submissions [37] - [38].
The defendant disputed that the fact of related companies and common directors between the defendant and RWM are sufficient to ground a 'case for investigation', and submitted that a wish to inspect documents to see if anything untoward has happened is not a proper purpose under s 247A.[49]
[49] Defendant's submissions [40] - [42].
It was further argued that the plaintiffs are making the application in their interests as creditors, not shareholders and in any event, the shares are valueless and thus do not constitute a substantial interest in the defendant.

Disposition

Standing

As members of the defendant company, the plaintiffs have standing, pursuant to s 247A(1).

Application must be made for a purpose connected to the rights of the applicant as shareholder

The evidence as to the capacity in which the plaintiffs sought the inspection of the documents in issue was somewhat unsatisfactory.
Three months after these proceedings were commenced, Ms Lee was appointed as a director of each of the second to fifth plaintiffs 'for the purpose of dealing with these proceedings'.[50] She was not a shareholder (or a director of a shareholder) of the defendant prior to those appointments. Apart from Ms Lee's evidence, no other evidence was adduced as to the belief of the directors of the plaintiffs in seeking inspection of the documents.
[50] First Affidavit [2].
The content of paragraphs [10] and [11] of the Second Affidavit also brings into question whether the plaintiffs' interest in inspection genuinely arises from their creditor status or their shareholder status. As was submitted by the defendant, while there is a slim chance of recovery as creditors, there is no apparent prospect of any return on the plaintiffs' investments as shareholders.[51]
[51] Defendant's submissions [18] - [21].
Having regard to Ms Lee's explanation that she was appointed as the director of the second to fifth plaintiffs for the purposes of these proceedings, and in the absence of any further explanation, it is difficult to draw any inference from those appointments other than that they were no more than a convenient mechanism to give Ms Lee standing as a shareholder.
However, in circumstances in which Ms Lee was not squarely given the opportunity to clarify her position as between shareholder and creditor, I will proceed on the basis that the application was being made for a purpose connected with the rights of the plaintiffs as shareholders.

Acting in good faith and for a proper purpose

Case for investigation as to 'previous director breaches'

In the course of her oral evidence, Ms Lee abandoned any purpose of furthering a case for derivative action against the former directors of the defendant.[52] Having regard to Ms Lee's evidence about having not seen the Administrators' Report, and the variation between Ms Lee's affidavit evidence and her vague and uncertain responses to questions regarding this issue under cross‑examination, I am unable to accept that it was ever a genuine purpose of the application to do so. This finding is only reinforced by the fact that the documents to which the plaintiffs seek access by the application could show little, if anything, as to the conduct of the former directors.

Case for investigation as to current director breaches

[52] ts 40.

At no stage in either the First Affidavit or Second Affidavit did Ms Lee directly depose to any belief or even suspicion on her part to the effect that the current directors of the defendant have breached their duties. The height of her affidavit evidence was that:
(1)the plaintiffs have 'concerns about the transparency of the Defendant's operation under the new arrangements imposed by the Deed of Company Arrangement';[53]
(2)there is a 'concern in relation to the company accounts';[54]
(3)it is sought to determine whether the defendant, by its agents, has operated in good faith to return part of the $30 million invested by the plaintiffs.[55]
[53] Second Affidavit [8].
[54] Second Affidavit [9].
[55] Second Affidavit [13].
In oral evidence under cross‑examination, Ms Lee said only that she did not know what was happening to the defendant company under the current directors.[56]
[56] ts 40.
Counsel for the plaintiffs referred to In the matter of Tolco Pty Ltd[57] in which Brereton J said:
[A]uthority for a member to inspect documents under s 247A does not depend on there being any pending or contemplated proceedings. As Barrett J observed in Smartec, the words 'in good faith' and 'for a proper purpose' in s 247A are not confined by reference to some cause of action or legal wrong, but are at large.[58] The touchstone of the discretion is 'what the court ought to require that the company tell its shareholder.'[59]
[57] In the matter of Tolco Pty Ltd [2016] NSWSC 1069 [23].
[58] Smartec Capital Pty Ltd v Centro Properties Ltd [2011] NSWSC 495 [65].
[59] Rowland v Meudon Pty Ltd [2008] NSWSC 381 [41] referring to Re Claremont Petroleum NL [No 2] [1990] 2 Qd R 310 (McPherson J) and Czerwinski v Syrena RoyalPty Ltd [No 1] [2000] VSC 125 (Warren J); Re Style Ltd; Merim Pty Ltd v Style Ltd [2009] FCA 314; Praetorin Pty Ltd v TZ Ltd [2009] NSWSC 1237 [36]; Smartec [64], [68].
Framing the test in this manner is of no additional assistance to the plaintiffs, when one considers the outcomes of Smartec and Tolco. In Smartec, Barrett J allowed the application only on a very limited basis, holding that the stated purposes of considering whether conflicts of interest had been appropriately managed and as being out of a concern that the company had breached its legal obligations were not, without more, 'proper purposes' within the meaning of s 247A. In Tolco, the applicant was one of only two shareholders of the company, the other shareholder also being the sole director of the company, who had opposed Tolco's interest in the company in the past. There was also some evidence of a matter requiring investigation. Neither case supported the submission that, in this case, the plaintiffs were acting in good faith and that the inspection was to be made for a proper purpose.
Counsel for the plaintiffs also heavily relied upon one paragraph of the judgment in Enares Pty Ltd v Nimble Money Ltd[60] for the proposition that seeking inspection of documents in order to ascertain whether there has been a breach of a director's duty is a proper purpose.[61]
[60] Enares Pty Ltd v Nimble Money Ltd [2022] FCAFC 126; (2022) 294 FCR 31.
[61] Enares [42].
However, in Enares, the court also observed that 'mere dissatisfaction' with directors' managerial decisions cannot provide a basis for an order under s 247A,[62] and said:
Whilst [establishing a case for investigation] is not a substitute for ascertaining whether good faith exists, in the absence of a reasonable basis or foundation for the asserted purpose for which inspection is sought, it cannot be said that the application is being made in good faith, no matter how fervently the applicant may believe in their claim.
Moreover, the concept of establishing a 'case for investigation' as an element of good faith usually operates to exclude applications by members who do not have any foundation for concern about a company's operation but wish to ascertain if something untoward has or may have happened. The section does not permit inspection by shareholders who are unsure about whether the directors have complied with their duty and merely wish to examine the company's books to satisfy themselves that no breach has occurred: Praetorin Pty Ltd v TZ Ltd at [64] - [65].
[62] Enares [43] - [44].
In my view, the evidence of Ms Lee went no further than establishing a desire on the part of the plaintiffs to know what was happening with the finances of the defendant and where any money generated by its operations were being spent. Her evidence as to this matter fell considerably short of establishing any case for investigation, or any basis for a reasonable suspicion of breaches of directors' duties.
Accordingly, I am not satisfied that, on this basis, the plaintiffs have established that they are acting in good faith and the inspection is for a proper purpose.

Directors common to defendant and RWM

Annexure TL-15 to the Second Affidavit highlighted that the directors of the shareholders of RWM were also RWM's directors. However, only Mr Symonds is a director of both RWM and the defendant.
Further, while counsel for the plaintiffs referred to the 'nature of the relationship between Alceon 50 and RWM in light of the common directors with apparent conflicting interests',[63] there was only one director common to Alceon 50 and RWM: Mr Symonds.
[63] Plaintiffs' submissions [34(b)].
Accordingly, the plaintiffs' submission, when the evidence is properly evaluated, must be that the mere fact that Mr Symonds is a director of both the defendant and RWM gives rise to a case for investigation. In my view, that fact is insufficient to establish any case for investigation.
I am not satisfied that, on this basis, the plaintiffs have established that they are acting in good faith and the inspection is for a proper purpose.

Combination

In light of counsel for the plaintiffs' submissions that these factors were each capable of standing alone as a proper purpose, I have dealt with them individually.
However, I have also considered the totality of Ms Lee's evidence as to what the plaintiffs seek and the reasons for it. Having done so, I am not persuaded that the plaintiffs' wish (as stated by Ms Lee) to ascertain whether there have been any breaches by the current directors of the defendant, in combination with the suspicions the plaintiffs have (as stated by Ms Lee) as a result of the 'common directors' between the defendant and RWM, establishes that the plaintiffs are acting in good faith and that the inspection is for a proper purpose.

Conclusion

I am not satisfied that the plaintiffs have established that they are acting in good faith and that the inspection is to be made for a proper purpose. Accordingly, the application must be dismissed with costs.

I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
AT
Associate to the Honourable Justice Forrester
9 NOVEMBER 2023