United Technologies International Corporation v Western Aerospace Ltd - [2000] WASC 234

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION: UNITED TECHNOLOGIES INTERNATIONAL CORPORATION -v- WESTERN AEROSPACE LTD & ORS [2000] WASC 234

CORAM: MASTER SANDERSON

HEARD: 15 SEPTEMBER 2000

DELIVERED : 25 SEPTEMBER 2000

FILE NO/S: COR 204 of 2000

MATTER :Section 247A of the Corporations Law of Western Australia
and
Western Australian Specialty Alloys Pty Ltd (ACN 053 910 188)

BETWEEN: UNITED TECHNOLOGIES INTERNATIONAL CORPORATION
Plaintiff
AND
WESTERN AEROSPACE LTD (ACN 052 452 310)
First Defendant
KYLE FREDERICK ABBOTT
Second Defendant
WESTERN AUSTRALIAN SPECIALTY ALLOYS PTY LTD (ACN 053 910 188)
Third Defendant

Catchwords:

Corporations law - Application for stay of application by shareholder to inspect books of company - Joint venture agreement between applicant and company incorporates provision for dispute resolution by mediation/arbitration - Difference between contractual/statutory right to inspect

Legislation:

Corporations Law, s 247A

Commercial Arbitration Act, s 53

Result:

Stay refused

Representation:

Counsel:

Plaintiff:     Mr K J Martin QC & Mr A N Siopis
First Defendant             :     Mr J C Vaughan
Second Defendant         :     Mr J C Vaughan
Third Defendant           :     Mr P G Clifford

Solicitors:

Plaintiff:     Phillips Fox
First Defendant             :     Freehill Hollingdale & Page
Second Defendant         :     Freehill Hollingdale & Page
Third Defendant           :     Tottle Christensen

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

Nil

Case(s) also cited:

Commonwealth v Adelaide Steamship Industries Pty Ltd (1974) 24 FLR 97
Crusader Resources NL v Santos Ltd, unreported; SCt of SA; 21 March 1990
Grants Patch Mining Ltd v Barrack Mines Ltd (1988) 6 ACLC 101
Qantas Airways Limited v Dillingham Corp (1985) 4 NSWLR 113

MASTER SANDERSON: This is the defendants' application to stay the plaintiff's application brought under s 247A of the Corporations Law for leave to inspect the third defendant's books. To understand the nature of the application, it is necessary to say something about the parties, their relationship one to the other and the contractual provisions which regulate their business dealings.
Some time prior to November of 1991, the plaintiff, the first defendant, and another United States company negotiated a joint venture agreement whereby the third defendant was to manufacture nickel based specialty alloys for casting and forging applications primarily for aerospace use. To facilitate this joint venture agreement, the third defendant was established. The plaintiff holds 25 per cent of the issued capital of the third defendant and a further 50 per cent of the issued capital is held by the first defendant. The remaining 25 per cent of the issued capital is held by a United States company, which is not a party to these proceedings. The second defendant is, and has at all material times been, the managing director of the third defendant. The parties entered into a joint venture agreement dated 20 November 1991. That agreement is to be found as annexure "RJR1" to the affidavit of Robert John Robinson ("Robinson"), sworn 1 August 2000 and filed in support of the plaintiff's application under s 247A. Remarkably enough, the joint venture agreement includes the third defendant, a company established specifically to put the joint venture into effect, as a party.
During 1998 and 1999, a disagreement arose between the plaintiff and the first defendant in relation to certain operational matters concerning the joint venture agreement. The nature of that dispute is not presently relevant. It is enough if I say that, in July of 1999, arbitrators were appointed at the request of the first defendant and a arbitration is set to commence on 30 October 2000.
In December of 1999, the plaintiff resolved to instruct Perth based accountants PPB Ashton Read to undertake a review of the books and records of the third defendant. In making this decision, Robinson says (par 9) that the plaintiff was acting pursuant to the provisions of Articles 17.1 and 17.6 of the joint venture agreement. These two articles are in the following terms:
"Access to Books, Records and Facilities.
17.1Subject to section 8.5, the Shareholders, each at its own expense, shall have full and complete access through an accountant, employee or other agent of its choice, to the books, records and facilities of the JV Company during normal business hours for the purpose of inspection or audit or for any other reasonable business purpose. The books and records of the JV Company shall be maintained on an Australian Dollar basis and shall remain at all times in the principal corporate office of the JV Company, provided that the Shareholders may make and remove copies of such books and records subject to section 8.5. The Shareholders agree to treat the information in such books and records as confidential to the JV Company.
17.6Review of Auditor's Results. Each of the Shareholders shall have the right, but not the obligation, to retain at its expense a certified public accounting firm of internationally-recognized standing (or its internal auditors) to review all work performed, and documents prepared, by the JV Company auditor. In the event of a material disagreement between the JV Company auditor and an auditor appointed by a Shareholder, any Shareholder may request that the President of the Institute of Chartered Accountants in Australia, Western Australian branch appoint an independent auditor of internationally-recognized standing to resolve the dispute. The findings of such independent auditor shall conclusively resolve any disagreement among the Shareholders with respect to the JV Company's accounting practices or financial statements."
Consistent with this decision to undertake an inspection of the third defendant's books, the plaintiff wrote to the second defendant, as manager of the third defendant, on 2 December 1999. This letter appears as annexure "RJR3" to Robinson's affidavit. The correspondence referred to the joint venture agreement, nominated PPB Ashton Read as the accountants who would undertake the review and concluded by advising that the accountants would contact the third defendant direct.
On 21 January 2000, Mr Herbert of PPB Ashton Read wrote to the third defendant confirming his appointment and referring to the plaintiff's rights under the joint venture agreement. This letter appears as part of annexure "FKA1" to the affidavit of the second defendant sworn 22 August 2000. The letter reads in part:
"We would like to commence our review with the following matters:
1.Loan agreements and all related party transactions.
2.Levels of creditors and compliance with terms of trade.
3.Levels of inventory holdings and recording and purchasing procedures.
4.Expenditure on research and development.
5.Terms of land grant.
6.Contractual relationships with related companies.
7.Cash management - local and foreign currencies.
8.Board and Management meeting minutes."
The third defendant wrote back to Mr Herbert on 31 January 2000 (also part of "FKAI"). The letter was written by the second defendant. The second defendant refers to the joint venture agreement and says:
"My understanding of the Joint Venture Agreement in relation to your appointment by UTIC (the plaintiff) is that clause 17.1 allows access for inspection of:
1."Books" of the company which refers to the company's statutory books and records (including books of prime entry for accounting purposes), and
2."Facilities" which refers to the physical machinery and equipment owned by WASA."
Mr Herbert wrote to the second defendant again on 15 February 2000 and 24 February 2000. Neither of those two letters is of relevance. They were concerned simply with setting up a time when Mr Herbert could attend the third defendant's premises. On 25 February 2000, the third defendant wrote again to Mr Herbert, setting out conditions upon which inspection of the books and facilities could take place. The third defendant also made it plain that it did not accept that Mr Herbert had an unfettered right to inspect its books and records. It maintained that the right of inspection was limited in line with what was said in its letter of 31 January 2000.
It was clear by now that there was a significant difference of opinion between the plaintiff and the third defendant over what rights to the third defendant's books were provided to the plaintiff pursuant to the terms of the joint venture agreement. This was made plain in a letter from the plaintiff to the third defendant dated 4 May 2000 (annexure "RJR8" to Robinson's affidavit). Mr Herbert has undertaken some limited inspection of the documents made available to him by the third defendant, but the parties remain at odds as to the plaintiff's rights. It is unnecessary for me to go further into the correspondence, save in one respect. By letter dated 5 July 2000, PPB Ashton Read wrote to the third defendant annexing a list of books and materials to which they were seeking access ("FKA2"). The list is extensive and goes well beyond the material earlier requested. If the third defendant were to comply with the plaintiff's request, it would have to disclose to the accountants its entire documentary records.
The plaintiff was clearly dissatisfied with the third defendant's attitude to the plaintiff's request for access to its books. It therefore issued proceedings under s 247A of the Corporations Law. Section 247A(1) reads as follows:
"On application by a member of a company or registered managed investment 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."
The defendants say that the plaintiff is acting outside the scope of the joint venture agreement. They say that there is a dispute between the plaintiff and the third defendant and that, pursuant to Article XVIII of the joint venture agreement, the parties should proceed to mediation and, if settlement is not reached, thereafter to arbitration. This, they say, is the dispute resolution mechanism agreed between the parties and it should not be bypassed. They therefore seek an order under the provisions of s 53(1) of the Commercial Arbitration Act1985. That section reads as follows:
"If a party to an arbitration agreement commences proceedings in a court against another party to the arbitration agreement in respect of a matter agreed to be referred to arbitration by the agreement, that other party may, subject to subsection (2), apply to that court to stay the proceedings and that court, if satisfied -
(a)that there is no sufficient reason why the matter should not be referred to arbitration in accordance with the agreement; and
(b)that the applicant was at the time when the proceedings were commenced and still remains ready and willing to do all things necessary for the proper conduct of the arbitration,
may make an order staying the proceedings and may further give such directions with respect to the future conduct of the arbitration as it thinks fit."
With respect, it seems to me that the defendants are acting on a mistaken premise. Pursuant to the provisions of the joint venture agreement, the shareholders in the third defendant have certain rights to inspect the "books and facilities" of the third defendant. When a dispute arises about the rights and liabilities of a party, as has happened here, any one of the parties may invoke the dispute resolution procedure set out in the joint venture agreement. If the matter cannot be resolved by mediation, it will be dealt with by arbitration pursuant to cl 18.2 of the joint venture agreement. The arbitrators will then construe the agreement and hand down an award. That award will have certain consequences for each of the parties. Subject to any right of appeal provided by the Commercial Arbitration Act, it will resolve the contractual issues between them. But standing apart from any contractual rights that the plaintiff may have pursuant to the joint venture agreement, there are the plaintiff's rights under s 247A of the Corporations Law. Those rights are not, and probably never could be, circumscribed by the joint venture agreement. They are separate from the agreement. An attempt to enforce an independent statutory right should only be stayed, in my view, in most exceptional circumstances. Those circumstances do not exist in this case.
The matter can be looked at another way. If the defendants' applications were successful, the plaintiff's application under the Corporations Law would be stayed - not dismissed, but stayed - presumably pending the outcome of the dispute resolution procedure contained in the joint venture agreement. If that dispute resolution procedure was resolved in the plaintiff's favour - that is to say, the third defendant's contention about the meaning of the phrase "books and facilities" was not limited as the third defendant says it is - then the Corporations Law application would fall away. But if the third defendant was successful and the plaintiff failed to gain the access to the books and records of the third defendant it wants, then it could still proceed under the Corporations Law. There would be no basis for continuing the stay indefinitely. The defendants may well point to the arbitrator's decision and the contractual relationship between the parties as part of its opposition to a s 247A application, but they can do that if the application were not stayed and was dealt with forthwith. To grant a stay would serve no purpose.
There are two other matters which I should mention briefly. The first is that I have some doubts as to whether or not s 53(1) applies in the circumstances of this case. The section operates when proceedings are issued "in respect of a matter agreed to be referred to arbitration by the agreement". The parties have not, in the joint venture agreement, agreed to refer applications under s 274A of the Corporations Law to arbitration. There is no doubt they have agreed to refer disputes which arise under cl 17 to the dispute resolution procedure. However, I make the point again that it is important not to confuse the contractual rights of the parties pursuant to the joint venture agreement with a statutory right of the plaintiff pursuant to the Corporations Law.
Secondly, I am satisfied that this is a case where, in exercise of the discretion conferred by s 53(1), it would not be appropriate to grant a stay. For reasons I have outlined above, I see no utility in such a course of action. The matter raised by the plaintiff's application is straightforward and concise and can be resolved in short order. The dispute resolution procedure envisaged by the joint venture agreement, while undoubtedly practical in many instances, is not well suited to resolving a dispute such as access to the books and records of the third defendant by the plaintiff. Allowing the plaintiff to proceed under the provisions of the Corporations Law is, in my view, by far the better course of action.
I would dismiss the defendants' applications for a stay. They should pay the costs of the application in any event.