Tinios, G. v French Caledonia Travel Service P/L
[1994] FCA 370
•10 JUNE 1994
GEORGE TINIOS v. FRENCH CALEDONIA TRAVEL SERVICE PTY. LTD.
No. VG3342 of 1993
FED No. 370/94
Number of pages - 8
Corporations
(1994) 12 ACLC 622
(1994) 13 ACSR 658
COURT
IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY
GENERAL DIVISION
JENKINSON J
CATCHWORDS
Corporations - Management and administration - Inspection of records - Purpose of ascertaining value of shares in a company the articles of which require the holder to offer the shares to other members at a price to be nominated by him a "proper purpose" when one or more of the other members are directors of the company.
The Corporations Law - s.319
HEARING
MELBOURNE, 10 December 1993
#DATE 10:6:1994
Counsel for the Applicant: Ms. E. Wentworth instructed by
Yuncken and Yuncken
Counsel for the Respondent: Mr. R.L.J. Batrouney, solicitor
instructed by Michie, Shehadie and Co.
ORDER
1. Anthony Maw a duly qualified legal practitioner of 2
O'Connell Street Sydney in the State of New South Wales and a registered company auditor to be nominated by the applicant in writing served on the respondent's solicitors not less than 14 days before the date of the inspection hereinafter mentioned be authorised to inspect and to make copies of and extracts from all the books (in the sense of that word prescribed in section 9 of the Corporations Law) of the respondent which may in the opinion of either of them yield information pertaining to the formation of an opinion as to the value of the applicant's shares in the respondent at any time on or within two months after the date of inspection.
2. The said inspection take place at the respondent's
registered office between 9 a.m. and 5 p.m. on 6 July 1994 or on such other date as the parties may appoint or as the Court may by further order fix.
3. Until further order each of the said Anthony Maw and the
said registered company auditor use the information disclosed to him as a result of the said inspection only for the purpose of forming such an opinion as is hereinbefore mentioned and for the purpose of, and only to the extent he considers necessary for, enabling the applicant to form such an opinion.
4. Until further order the applicant use information disclosed
to the said Anthony Maw or the said registered company auditor as a result of the said inspection only for the purpose of forming such an opinion as is hereinbefore mentioned and for the purpose of negotiating with Georgia Anastasia Tinios of 110 Sussex Street Sydney in the said State for a sale to her of one or more of the said shares and for the purpose of complying with the requirements of article 25 of the respondent's articles of association in respect of transfer of one or more of the said shares.
5. Further consideration of the proceeding be adjourned to a
date to be fixed.
6. Each party be at liberty to apply.
7. The applicant's costs of the proceeding to and including
this day and of the entry of this order be paid by the respondent.
Note: Settlement and entry of orders is dealt with in Order 36 of
the Federal Court Rules.
JUDGE1
JENKINSON J
Application by a member of the respondent company for an order under s.319 of the Corporations Law that a named solicitor and a registered company auditor to be nominated by the applicant, acting on behalf of the member, be authorised to inspect books of the company.
Articles 25 and 26 of the company's articles of association provide:
"25. Subject as hereinafter provided, no transfer of shares shall be permitted unless the following procedure is followed:-
(a) A member proposing to transfer any shares (hereinafter called a `proposing transferor') shall serve upon the company a notice in writing (hereinafter called a `transfer notice') stating:-
(i) that he wishes to transfer the shares specified in the transfer notice; and
(ii) the price per share which he fixes as the fair value thereof;
and accompanied by the certificate or certificates for the said shares.
(b) A transfer notice may include several shares, in which case it shall operate as if it were a separate notice in respect of each share, but if different classes of shares are involved, a separate transfer notice shall be served upon the company in respect of the shares of each class.
(c) The service of a transfer notice upon the company shall be deemed to constitute the company the agent of the proposing transferor for the sale of the shares specified therein as hereinafter provided, and the proposing transferor shall be deemed to have warranted to the company that he has the right to transfer the said shares free from encumbrance.
(d) Forthwith upon receipt of a transfer notice, the company shall serve upon all members holding shares of the class comprised in the transfer notice a notice in writing (hereinafter called an `offer document') stating:-
(i) that a transfer notice has been received from the proposing transferor in respect of the share comprised therein;
(ii) the price per share which the proposing transferor fixes as the fair value thereof; and
(iii) the number of shares for which the member to whom the offer document is addressed is entitled to apply (being a number which bears as nearly as may be in relation to the number of shares comprised in the transfer notice the same proportion as the number of shares of that class held by that member bears to the total number of issued shares of that class).
(e) Within seven (7) days after service of an offer document, each member upon whom the offer document has been served shall deliver to the company a reply in writing (hereinafter called a `reply') stating:-
(i) whether he accepts in full or rejects in full the shares comprised in the offer document; and
(ii) If he accepts the shares comprised in the offer document, whether he accepts the price per share fixed by the proposing transferor as the fair value thereof, or whether he requires the shares to be valued in order to ascertain the fair value thereof.
(f) Any member upon whom an offer document has been served who does not deliver a reply to the company as hereinbefore provided shall be deemed to have rejected in full the shares comprised in the offer document.
(g) If any member upon whom an offer document has been served delivers to the company a reply stating that he accepts in full the shares comprised in the offer document, but requires the shares to be valued, the directors shall forthwith request the auditor of the company (or if there is no auditor, a chartered accountant appointed by the directors for this purpose) to certify in writing what he considers to be the fair value of each of the shares comprised in the transfer notice, and shall also forthwith serve upon each member of the company (including the proposing transferor) a notice in writing stating that a valuation has been sought in order to ascertain the fair value of the shares specified in the transfer notice.
(h) The valuation fees payable to any such auditor or chartered accountant (who shall be deemed to be acting as an expert and not as an arbitrator) shall be borne and paid by the proposing transferor, the member or members who requested the valuation, or all any one or more of them as the directors in their discretion think proper.
(i) If no member upon whom an offer document has been served requires that the shares comprised therein be valued, the consideration payable for each such share shall be the price per share fixed by the proposing transferor as the fair value thereof; but if any such member requires that the shares be valued, the consideration payable for each such share shall be:-
(i) the price per share fixed by the proposing transferor as the fair value thereof; or
(ii) the value certified by the auditor or chartered accountant as the case may be pursuant to sub-clause (g) hereof;
whichever is the less.
(j) As soon as the consideration payable for the shares comprised in a transfer notice is ascertained as hereinbefore provided:-
(i) the directors shall prepare and deliver to each of the members who delivered a reply stating that he accepted in full the shares comprised in the offer document served upon him (hereinafter called a `purchasing member') a share transfer form showing:-
(A) the name and address of the proposing transferor;
(B) the name and address of the purchasing member;
(C) the number and class of shares which the purchasing member has accepted; and
(D) the consideration payable therefor; and the purchasing member shall, within seven (7) days thereafter, sign and return the said transfer form to the company, together with a bank cheque or cash for the consideration payable by him; and
(ii) the directors may prepare and deliver to any person whom they consider it desirable in the interests of the company to admit (hereinafter called an `approved purchaser') and who has agreed to purchase any shares comprised in the transfer notice but rejected by members a share transfer form showing:-
(A) the name and address of the proposing transferor;
(B) the name and address of the approved purchaser;
(C) the number and class of shares which the approved purchaser has agreed to purchase; and
(D) the consideration payable therefor; and the approved purchaser shall, within seven
(7) days thereafter, sign and return the said transfer form to the company, together with a bank cheque or cash for the consideration payable by him.
(k) The directors shall thereupon deliver the signed share transfer forms to the proposing transferor, who shall forthwith sign them and return them to the company in exchange for the consideration for the shares comprised therein.
(l) If in any case a proposing transferor after having become bound as aforesaid makes default in transferring the said shares the company may receive the purchase money and shall thereupon cause the name of the purchasing member or the approved purchaser as the case may be to be entered in the register as the holder of the said shares and shall hold the purchase money in trust for the proposing transferor. The receipt of the company for the purchase money shall be a good discharge to the purchasing member or the approved purchaser as the case may be, and after his name has been entered in the register in purported exercise of the aforesaid power the validity of the proceedings shall not be questioned by any person. This sub-clause shall have effect notwithstanding the provisions of articles 22 and 23.
(m) If after exhausting the procedures specified in sub-clauses
(a) to (l) of this article there remain shares which were specified in a transfer notice which have not been agreed to be purchased by any purchasing member or approved purchaser, the proposing transferor shall have the right at any time within a period of thirty (30) days thereafter to sell the said shares to any person and at any price, subject always to the provisions of article 3(c).
26. Article 25 shall not apply to any transfer of shares from a member to another member, or to any transfer of shares which has the unanimous approval in writing of all of the members for the time being."
There are presently only two members of the company, of whom the applicant is one. He wishes to sell his shares. In order to comply with those articles the applicant must either make an agreement with the other member for transfer of his shares to her at an agreed price or comply with the requirements of article 25(a). She is a director of the company, but he is not. In either case the member's stated purpose of obtaining expert advice, based on the information which inspection of the accounting and banking records of the company may be expected to afford, as to the value of his shares appears to be a "proper purpose", within the meaning of s.319(1)(b). A member of a company, the articles of which are to the effect of articles 25 and 26, and some of the other members of which are directors, but of which he is not a director, may in my opinion be said to have a proper purpose in seeking, by means of an order under s.319, the information to which those other members have access. If that were all the evidence disclosed, and the Court were also satisfied of the applicant's good faith, an order would no doubt appropriately be made.
The other member was at one time the applicant's wife, and still bears his surname, but the marriage has been dissolved. The applicant acquired the shares he now holds (about 9 per centum of the issued capital) in 1987 pursuant to an agreement of which the following was a term:
"(u) The parties agree that they will not directly or indirectly and whether solely or jointly with or as director, manager, agent or servant of any person or corporation with the exception of Norwig, carry on, or be engaged or interested in, any business of the nature of the business hereby sold, or any significant component thereof, or permit their names or the names of any of them to be used in connection with any such business with the exception of any business of Norwig.
(i) within the States of New South Wales and Victoria and Queensland.
Except to the extent otherwise agreed the Vendor and George shall not after completion of this agreement engage in conduct derogating from Norwig's right to obtain the full benefit of the goodwill of the business. The areas are acknowledged by the Vendor and George to be no greater than reasonably required to protect the goodwill sold to Norwig." (sic)
The word "Norwig" in the agreement means the company and the word "George" means the applicant and the words "the Vendor" mean the other member of the company. The business of the company has at all material times been that of a "wholesale travel agency". The applicant conducts a similar business. The two businesses are in competition in what is described in Mrs. Tinios's affidavit as "a relatively specialised area" of the wholesale travel industry in which only a small group of agents have expertise. She further deposed:
"Information regarding the financial status of any company trading in the wholesale travel industry could be used to prejudice that company or be used to a competitor's advantage."
That evidence was not contradicted. I accept it. Mrs. Tinios shares the applicant's wish that he sell his shares and concedes the need he has of expert advice about their value. But she submits by counsel for the respondent that the order for inspection should be by a registered company auditor who is appropriately qualified to value the shares and who is chosen, not by the applicant, but by the Court, and that the person so appointed should be ordered to communicate to the applicant nothing of what he learns by his inspection except his opinion as to the value of the shares. The applicant received no notice of the last three annual general meetings of the company and has not attended the last four such meetings and has not seen the annual financial statements required to be made available to shareholders at such meetings. It was not disputed by the respondent company's counsel at the hearing of this proceeding that those statements should be made available to Mr. Tinios while he remains a member of the company. Mrs. Tinios deposes not only to the applicant's breach of clause (u) of the agreement, which I have quoted, but also to misrepresentations she alleges he has made in the travel industry. She deposes to her belief that he "has waived his entitlement as a shareholder of the company".She is presently suing him for the money she alleges that she paid to the company in respect of the allotment to him of the shares he holds in the company. Mr. Tinios's solicitor deposes, in an affidavit filed in this proceeding, to the applicant's "willingness to abide by an order of the Court" for inspection on the footing that the information thereby gained will "be used only for the purpose of gaining legal and accounting advice and any subsequent legal proceedings". The draft order proposed by his counsel included a prohibition of use of such information for any purpose other than that of obtaining such advice "and in any consequent legal proceedings". No specific contemplated legal proceeding was indicated by the applicant or his counsel. But the draft minutes of the orders proposed by Mr. Tinios's counsel included an order for inspection of -
"all documents relating to the calling of and the business conducted at the annual general meetings of the company held during the period 1 January 1988 to the date of such inspection."
And counsel for Mr. Tinios had pointed out in the course of her submissions that the failure of a director to take all reasonable steps to comply with any of the provisions of Part 3.2A of the Corporations Law (other than certain provisions not presently material)constitutes a contravention by the director of s.318(1), and that the requirements that members be given notice of meetings of the company and copies of the company's financial statements are prescribed in Part 3.2A : see ss. 247(4), 315(2), 316(1), 318(2) and Part 9.4B.
In the circumstances I have outlined I consider that use of the information to be derived from an inspection authorised under s.319 should be confined for the present to use for the purpose of enabling the applicant to form his opinion as to the value of his shares. Until it is known what kind of "consequent" or "subsequent" legal proceedings are to be undertaken no further use should be permitted. So far as appears by evidence Mr. Tinios did not enquire about meetings of the company or about the company's financial statements until recently. But I consider that the applicant should be free to select the person or persons to be authorised, provided that he or they have a qualification of the kind indicated by paragraph 319(1)(a) of the Corporations Law. The value of a share is a matter of opinion and the holder of the share should be free to select his adviser, unless some consideration justifies a limitation or abrogation of that freedom.
There will be an order that Anthony Maw a duly qualified legal practitioner of 2 O'Connell Street Sydney in the State of New South Wales and a registered company auditor to be nominated by the applicant in writing served on the respondent's solicitors not less than 14 days before the date of the inspection hereinafter mentioned be authorised to inspect and to make copies of and extracts from all the books (in the sense of that word prescribed in section 9 of the Corporations Law) of the respondent which may in the opinion of either of them yield information pertaining to the formation of an opinion as to the value of the applicant's shares in the respondent at any time on or within two months after the date of inspection. There will be an order that the said inspection take place at the respondent's registered office between 9 a.m. and 5 p.m. on 6 July 1994 or on such other date as the parties may appoint or as the Court may by further order fix; and an order that until further order each of the said Anthony Maw and the said registered company auditor use the information disclosed to him as a result of the said inspection only for the purpose of forming such an opinion as is hereinbefore mentioned and for the purpose of, and only to the extent he considers necessary for, enabling the applicant to form such an opinion. There will be an order that until further order the applicant use information disclosed to the said Anthony Maw or the said registered company auditor as a result of the said inspection only for the purpose of forming such an opinion as is hereinbefore mentioned and for the purpose of negotiating with Georgia Anastasia Tinios of 110 Sussex Street Sydney in the said State for a sale to her of one or more of the said shares and for the purpose of complying with the requirements of article 25 of the respondent's articles of association in respect of transfer of one or more of the said shares. Further consideration of the proceeding will be adjourned to a date to be fixed, and an order made that each party be at liberty to apply. There will be an order that the applicant's costs of the proceeding to and including this day and of the entry of this order be paid by the respondent.
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