- Acehill Investments Pty Ltd v Incitec Ltd

Supreme Court of NSW|2017-11-21|Before: Black J

Solicitors: Lloyd & Lloyd (Plaintiff) Whittens & McKeough (Defendant) File Number(s): 2017/205481

Background and affidavit evidence

By way of background, Sirrah was incorporated in 1963. Sirrah conducted a nursing home business at Westmead, New South Wales, although a contract for sale has now been entered into in respect of that business. The late Mr Robert Harris and the late Ms Aileen Harris were originally the shareholders in Sirrah. On 30 October 2002, Mr Robert Harris resigned as a director and company secretary of Sirrah and Mr William Harris, who is the Plaintiffs' brother, was appointed as a director and, on 5 December 2002, company secretary of Sirrah.
On 27 February 2003, the number of issued shares in Sirrah was increased to 741 ordinary shares and 341 of the 741 issued ordinary shares were issued to Harris Health Care Pty Ltd ("Harris Health Care"), a company associated with Mr William Harris, and 200 ordinary shares were issued to each of Mr Robert Harris and Ms Aileen Harris. I will refer to this transaction as the "2003 transaction".
In April 2009, Ms Aileen Harris transferred a further 50 shares to Harris Health Care. It appears that transaction was associated with her entry into a deed with Mr William Harris and Harris Health Care on 1 April 2009, by which Mr William Harris gave up claims under her will and under the Family Provision Act 1982 (NSW), and her execution of a will on the same date which provided for the corresponding transfer of 50 shares to each of her sons and daughters other than Mr William Harris and one daughter who had indicated a wish not to receive such a transfer. I will refer to this transfer of shares to Harris Health Care which was a component of this transaction as the "2009 transaction".
Mr Robert Harris died on 2 May 2003. Ms Aileen Harris died on 25 March 2016 and probate of her will was granted to the Plaintiffs on 31 August 2016. A company search of Sirrah records that the Plaintiffs hold 350 of the ordinary shares in Sirrah and Harris Health Care owns the other 391 shares in Sirrah.
The Plaintiffs rely on Mr Gregory Harris' affidavit dated 5 July 2017. Mr Gregory Harris' evidence (Harris [15]-[16]), by way of submission, is that the Plaintiffs challenge the 2003 transaction on the basis that Harris Health Care then took control of 47.2% of the issued shares of Sirrah; the transactions were (the Plaintiffs contend) not authorised by Sirrah's articles of association and were invalid and ineffectual to pass any ordinary shares to Harris Health Care because Mr William Harris did not then satisfy a shareholding qualification to be a director of Sirrah and could not vote as a director in respect of that transaction; and (they contend) the issue of shares to Harris Health Care: "does not appear to have been for a proper and beneficial purpose to raise capital or funding for Sirrah. No adequate consideration appears to have been given for the issue of the shares, apart from the nominal amount of $0.01 per share."
Mr Harris' evidence (Harris [17]-[18]) is that he has been unable to obtain documents or information about these issues and that he believes it necessary for the proper administration of his late mother's estate that steps be taken to initiate proceedings to set aside the transactions with Harris Health Care; that he has formed the view that the shareholding in Sirrah of Harris Health Care ought to be cancelled; and this can only be achieved if the Court so ordered. The proposed proceedings therefore contemplate an application to set aside an issue of shares that occurred some 14 years ago and has been in place throughout that period. Although Mr Gregory Harris' evidence is that the Plaintiffs did not have access to Sirrah's articles of association or other company documents prior to mid-2016, it should be noted that the late Ms Aileen Harris, of whose estate they are executors, was party to the issue of those shares in her capacity as shareholder in Sirrah. Mr Gregory Harris' evidence (Harris [21]) is also that: "In our roles as executors of [the late Ms Aileen Harris'] estate, my sister and I have endeavoured to obtain company information and books and records so as to understand the historical commercial operations, business and current status of Sirrah's activities."
Mr Harris also advances an allegation of "very significant problems and breaches of the law by Sirrah" and those connected with its activities, while it was controlled by Mr William Harris and his son, the late Matthew Harris, although he does not identify any such problem or breach with specificity, beyond the complaint as to the issue of shares to Harris Health Care.
Mr Harris' evidence (admitted with a limiting order s 136 of the Evidence Act 1995 (NSW) as evidence of his understanding only) is also (Harris [25]) that the Plaintiffs cannot adequately instruct experts and other advisers to assist them to value Sirrah's business and that: "In particular, we lack information for provision to a commercial funder to enable such a funder to assess the credit-worthiness of Sirrah for an appraisal of whether the company may rollover or refinance of its borrowings." Mr Harris does not there explain why such an assessment or appraisal needs to be undertaken by the estate of the late Ms Aileen Harris, as distinct from the directors of Sirrah. Mr Harris also expresses the view (Harris [26]) that Mr William Harris "has operated Sirrah in breach of its articles of association and in breach of the Corporations Act 2001 Cth", although again no evidence is advanced for that allegation, beyond the issue as to the issue of shares to Harris Health Care to which I referred above.
Mr Harris also refers to the transfer of a property at Helensburgh from his parents to Mr William Harris. That transaction does not appear to relate to the affairs of Sirrah, and, in any event, it appears to have been recognised by a statutory declaration executed by the late Ms Aileen Harris in July 2006, explaining why she did not leave a bequest to Mr William Harris under her will.
Mr Harris expresses the view (admitted with a limiting order under s 136 of the Evidence Act as reflecting his understanding only) that the late Ms Aileen Harris was not in a position to make a proper informed decision as to the entry into the 2009 transaction and was vulnerable to undue influence from Mr William Harris and was so influenced. As Mr Lawrance points out, any claim in that respect would be a personal claim of the Plaintiffs and not a claim in his or her capacity as a member of Sirrah nor a claim by Sirrah.
Mr Harris' affidavit exhibits a draft Originating Process in respect of a proposed claim against Sirrah, Mr William Harris and Harris Health Care, which relevantly seeks leave for the Plaintiffs to bring a derivative action in the name of Sirrah, a declaration that the 2003 transaction was of no effect and a declaration that the purported transfer of shares in Sirrah to Harris Health Care in February 2010 (which is presumably a reference to the 2009 transaction) was invalid and of no effect; and an order that an account be taken of any monies received by Harris Health Care pursuant to any management contract (or other arrangement) between Harris Health Care and Sirrah and that an account be taken of any monies received by any of Mr William Harris, Mr Matthew Harris or Harris Health Care pursuant to any loan arrangements between Sirrah and those persons. That claim implies that a claim for breach of fiduciary duty would be brought by Sirrah against those persons so as to support an order for an account.
An exhibit to Mr Harris' affidavit contained the financial report for Sirrah for the year ended 30 June 2013 (Ex P1, 116-149), which recorded, inter alia, a modest profit for the 2012 financial year and a significant loss for the 2013 financial year, and the existence of loans in excess of $298,000 to related parties in the 2013 financial year. Note 19 to those financial statements, dealing with related party transactions, recorded the payment of management fees to Harris Health Care in the amount of $540,833 in the 2012 financial year and $351,928 in the 2013 financial year and confirmed that the relevant related party loan was a loan to Harris Health Care.
The financial report for Sirrah for the year ended 30 June 2014 (Ex P1, 150-185) again records a substantial loss in the 2014 financial year and records management fees in excess of $310,000 paid to Harris Health Care in that year and a reimbursement of employee entitlements of $875,173 paid to Harris Health Care in that year. The financial report of Sirrah for the year ended 30 June 2015 (Ex P1, 186-223) again records a substantial loss for Sirrah, although a lesser loss than the previous year and records management fees of $642,676 paid to Harris Health Care in that year.
The financial report of Sirrah for the year ended 30 June 2016 (Ex P1, 224-258) again records a loss, although reduced from the loss incurred in the 2015 financial year, and records related party transactions including management fees paid to Harris Health Care of $438,364, a loan to Harris Health Care of $445,050 and a loan to William Harris of $588,932, which the directors recognised was not on normal commercial terms. The financial report for Sirrah for the financial year ending 30 June 2017 (Ex P3) recorded a modest profit, but a significant loss from continuing operations, during the year ended 30 June 2017; indicated that Sirrah's current liabilities exceeded its current assets by a substantial amount; and noted the auditors' view that there was material uncertainty relating to whether Sirrah was a going concern. Management fees were again paid to Harris Health Care in the amount of $770,465 and the loan to Harris Health Care had increased to $1,199,287, although the loan to Mr Harris was said to have been "extinguished" by "a reorganisation of related party loans".
In oral submissions, Mr Lawrance relied on notes to several of Sirrah's financial statements to the effect that related party transactions were on normal commercial terms (T41), although those notes did not extend to all such transactions, and on the fact that those financial statements were audited. I give little weight to that matter in displacing any cause for inquiry as to the related party loans, where the directors' view as to that matter or an auditor's lack of comment about it is not conclusive as to the relevant fact.
It is common ground between the parties that, in November 2017, Sirrah entered a contract to sell the nursing home and land, although the details of that contract were not in evidence.
The Plaintiffs also relied on the affidavit dated 18 October 2017 of their solicitor, Mr See, which exhibited further correspondence between the parties' legal representatives, including correspondence relating to the sale of Sirrah's assets. There has, generally, been extensive correspondence between the parties' solicitors in respect of the application for access to information and their wider differences, and I was taken to some of that correspondence in submissions. No useful purpose would be served by reviewing that correspondence in this judgment.

The applicable legal principles and the parties' submissions

Section 247A(1) of the Corporations Act permits the court, on the application of, relevantly, a member of a company to make an order authorising the applicant to inspect books of the company, or authorising another person (whether he or she is a member or not) to inspect books of the company on the applicant's behalf. The court may only make such an 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. Unless the court otherwise orders, a person who is authorised to inspect the books under s 247A may make copies of those books: s 247A(2). Subsections 247A(3)-(4) permit a person who is granted leave to bring derivative proceedings under s 237 or applies for or is eligible to apply for leave under that section to apply to the court for an order authorising that person to inspect books of the company or authorising another person to inspect books of the company on that person's behalf. The court is able to make such an order only if it is satisfied that the applicant is acting in good faith and that the inspection of those books is to be made for a purpose connected with the application for leave under s 237, or with bringing or intervening in proceedings pursuant to leave granted under that section: s 247A(5).
Before the court will make an order for inspection under s 247A, the applicant must establish that he or she is acting in good faith and that inspection is sought for a proper purpose: Barrack Mines Ltd v Grants Patch Mining Ltd (1987) 12 ACLR 357; (1988) 6 ACLC 97. In Acehill Investments Pty Ltd v Incitec Ltd [2002] SASC 344; (2002) 233 LSJS 97 at [29], in a passage which has subsequently been quoted with approval in many judgments, Debelle J identified several matters relevant to the discretion to authorise inspection under s 247A of the Corporations Act as follows: "1. The requirement that the applicant is acting in good faith and that the inspection is to be made for a proper purpose expresses a composite notion and the court will determine whether each has been demonstrated by applying an objective test. 2. The onus is on the applicant to demonstrate that he is acting in good faith and that the inspection is for a proper purpose. 3. The section operates where the applicant seeks to protect some specific or personal right by the making of the order. Examples are where a shareholder contemplates proceedings under s 233 of the Corporations Act (the statutory successor of s 320 of the Companies Code) … or where a shareholder reasonably takes the view that a transaction could adversely affect his investment and he seeks to investigate the transaction for the purpose of determining what action he should take … or where a shareholder seeks to ascertain facts for the purpose of considering a takeover offer … 4. If the applicant's primary or dominant purpose is a proper purpose, it is not to the point that an inspection may be of benefit to the applicant for some other purpose … 5. The rights provided by s 247A should not be regarded as affecting the basic rule of company law that a shareholder should not ordinarily have recourse to the courts to challenge a managerial decision made by or with the approval of the directors. 6. Since every shareholder has a right to apply under the section for an inspection order, it is no answer to an application that, if an order is made, the applicant may acquire information not available to other shareholders and thereby be in a more advantageous position than those shareholders. 7. Applicants do not necessarily lack a proper purpose merely because (a) they are hostile to other directors; or (b) they will, after inspection, have more information than other members. 8. The procedure under s 247A is not intended to be a process as wide-ranging as the process of discovery of documents so that, as a general rule, inspection will be confined to, say, the results of decisions of directors rather than all the documents such as board papers leading to decisions … I emphasise that this is a general rule. There may be occasions where it is proper to admit inspection of board papers … 9. Even where an applicant is acting bona fide and has shown a proper purpose, the court has a discretion whether to order inspection."
The jurisdictional requirements of good faith and proper purpose are satisfied if the plaintiff could reasonably take the view that its investment in the company may be at risk and there is a "case for investigation": London City Equities Ltd v Penrice Soda Holdings Ltd [2011] FCA 674; (2011) 281 ALR 519; 84 ACSR 573 at [29], [36]-[38]. There is also authority that an applicant for an order under this section must show a case for investigation as regards past or future wrongful or other undesirable conduct and not merely dissatisfaction or disagreement with management decisions: Cescastle Pty Ltd v Renak Holdings Ltd (1991) 6 ACSR 115 at 118; Praetorin Pty Ltd v TZ Ltd [2009] NSWSC 1237; (2009) 76 ACSR 236.
In Smartec Capital Pty Ltd v Centro Properties Ltd [2011] NSWSC 495; (2011) 83 ACSR 461, Barrett J referred to several purposes for which inspection has been permitted under s 247A of the Corporations Act, as identified in an article by Mr C Mantziaris, "The Member's Right to Inspect the Company Books: Corporations Act, s 247A" (2009) 83 ALJ 621, which included, relevantly, allowing a member to "investigate prima facie irregularities in the company's financial accounts or transactions", to investigate the directors' conduct in relation to the whereabouts and commercial benefit to the company of its profit and cashflow, and to allow a member to investigate other reasonably suspected breaches of duty. Plainly, there is no suggestion in that article, or in the cases which refer to it, that those categories are closed. His Honour also observed (at [65]) that the words "in good faith" and "for a proper purpose" in s 247A of the Corporations Act are not confined by reference to a particular cause of action or legal wrong and are at large.
In Re Tolco Pty Ltd [2016] NSWSC 1069, Brereton J ordered inspection of several categories of documents where a member of the company was concerned that a dividend may have been declared in breach of s 254T of the Corporations Act and inappropriately credited to a shareholder's loan account and also wished to investigate the assets that should be held by the relevant company. In that case, the shareholder was also contemplating an application for leave to bring derivative proceedings in respect of transactions removing assets or profits from the company, and Brereton J accepted (at [20]) that an investigation of books and records relating to unusual and suspicious transactions or dealings so as to understand those transactions were connected with the shareholder's interest as a member and were prima facie proper purposes. His Honour followed Acehill Investments Pty Ltd v Incitec Ltd above in identifying (at [16]) the main considerations applicable to whether to grant an order under this section as: "[F]irst, that the applicant must demonstrate that it is acting in good faith and that the inspection is to be made for a proper purpose, which is judged objectively; secondly, that the procedure is not intended to be in the nature of discovery; and, thirdly, that the remedy is in any event discretionary."
His Honour there also identified (at [17]) several proper purposes of such an application, including the investigation of prima facie irregularities in a company's financial accounts or transactions, the investigation of directors' conduct in respect of the company's profit and cashflow or a reasonably suspected breach of duty; the valuation of members' shares to negotiate for an exit price or the examination of the effect of a corporate debt transaction on the value of the member's shareholding; or to prosecute a proceeding to injunct a meeting on the basis of inadequacies in disclosure. In Tolco Pty Ltd above, Brereton J also observed (at [23], omitting citations) that: "… in the context of a member's inspection under s 247A, the principles applicable on applications for preliminary discovery or applications by directors under s 198F (which provides that a director may inspect the books of the company for the purposes of a legal proceeding to which the person is a party; or which that person proposes in good faith to bring; or which that person has reason to believe will be brought against him or her) are of limited relevance, because such applications are necessarily ancillary to pending or contemplated proceedings for substantive relief, whereas authority 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. The touchstone of the discretion is "what the court ought to require that the company tell its shareholder". While it is a relevant consideration that there is a specific dispute rather than general dissatisfaction with management, an application should not be necessarily be refused because it is grounded on general dissatisfaction with management, and the extent and value of the applicant's personal interest is a relevant consideration. Thus, I do not accept that an order under s 247A can be made only where some reasonable ground can be established, on an objective basis, for believing that there has been or will be some particular misconduct, maladministration or other wrongful or undesirable conduct."
His Honour also observed (at [25]), in an observation that seems to me to be of significant importance in an application of this kind, that: "There is an enormous difference in this context between the position of a small shareholder in a large public listed company, where there are many protective governance measures in place, with that of a 50% shareholder in a small private company in which the sole director is the other 50% shareholder. In the former situation, the expectation of the maintenance of an informed market and investor body is underwritten by the continuous disclosure regime which is administered by ASX; the need for a single investor to have access to company documents is likely to be greatly reduced by the existence of that regime. In the latter situation, however, there is no such regime, and a prudent shareholder would periodically inspect the company books, and a reasonable director ought to allow it - there is effectively no other means by which the shareholder can exercise due diligence in respect of the investment. In the context of Tolco's history and ownership, it ought to make its books and records readily and extensively available to its 50% shareholder TFGS, having vindicated its shareholding, to review to the extent it wishes the conduct of the company affairs under the management of the sole director."
The Court has a discretion as to whether books are made available for inspection if the requirements of the section are otherwise satisfied: Vinciguerra v MG Corrosion Consultants Pty Ltd [2007] FCA 503; (2007) 61 ACSR 583 at [37]. The court also has power to limit the scope of inspection permitted under the section and the exercise of the court's discretion whether to make an order under this section requires the court to consider not only whether it is appropriate to make an order for inspection, but also to consider which of the books of the company should be made available under that order: Majestic Resources NL v Caveat Pty Ltd [2004] WASCA 201 at [21]. There are disputes between the parties as to the extent to which inspection should be permitted under several categories and I will determine those disputes below.

The Plaintiffs' areas of concerns and the specified categories

Mr Maroya identified five areas of concern for the Plaintiffs, three of which related to the 2003 transaction, the fourth related to the 2009 transaction and the fifth related to the sale of the nursing home business. Several other justifications for inspection were put by Mr Maroya and addressed by Mr Lawrance in oral submissions. Broadly, Mr Maroya submits that: "… the Plaintiffs' application is one that is made in good faith, and for a proper purpose. The Plaintiffs are the executors of their late mother's estate, and by dint of that, are significant shareholders in Sirrah, and have an important duty to discharge. [Mr Gregory Harris'] affidavit evidence reveals a rationale, objective basis for the application to inspect Sirrah's books and records. The Plaintiffs' suspicions about a breach of duty are reasonable ones. The Plaintiffs' contemplated action is substantive and not fanciful; nor is it 'artificial, specious or contrived': see Hanks v Admiralty Resources NL (2011) 85 ACSR 101 at [32] and [41]; Engel v National Biodiesel Ltd [2015] FCA 1114 at [8]-[9]."
Mr Lawrance responds that, other than for those categories of documents that were subject of its open offer, Sirrah opposes the application for inspection on the basis that the Plaintiffs' reasons for seeking to inspect the documents do not entitle them to an order for inspection of those documents; the Plaintiffs already believe that they are entitled to commence proceedings in respect of several causes of action and have decided to do so and accordingly do not need to inspect the documents that they seek; and many of the categories of documents sought in the schedule were too broad in scope or over too broad a period of time or were unrelated to the reasons given by the Plaintiffs for bringing the application. The objection as to the scope of those categories has, to some extent, been displaced by the Plaintiffs' narrowing those categories in the course of submissions.
I will first comment generally as to the Plaintiffs' identified concerns, before turning to the categories of documents as to which the Plaintiffs seek inspection. The Plaintiffs' first three identified concerns, relating to the 2003 transaction, were that Harris Health Care gave only nominal consideration to Sirrah for the issue of 341 ordinary shares in Sirrah to it; that the issue of those shares was not authorised by Sirrah's articles of association and was invalid; and that the issue of shares was not done for a proper and beneficial purpose to raise capital or funding for Sirrah. Mr Lawrance responds with detailed submissions as to why, Sirrah contends, the issue of shares to Harris Health Care was not suspicious or inappropriate. He acknowledges, however, that Sirrah (or possibly Harris Health Care) may need to seek validation of the transaction under s 1322 of the Corporations Act, so far as Mr William Harris was involved in the transaction as a director of Sirrah and did not then personally hold shares in Sirrah, although Harris Health Care did hold such shares. It is not necessary or appropriate that I seek to determine the underlying merits of the challenge to the issue of those shares in this application, where at least the challenge to that issue on technical grounds is arguable.
The Plaintiffs' fourth concern was that the transfer of 50 shares in Sirrah by the late Ms Aileen Harris to Harris Health Care in the 2009 transaction was for a nominal consideration, not for a proper purpose, and done in circumstances where Mr Gregory Harris and Ms Brown contend that the late Ms Aileen Harris was not in a position to make a proper decision as to her own best interests. Mr Maroya accepted, in submissions, that the claim for inspection in respect of this transaction is "perhaps the weakest of the claims" advanced by the Plaintiffs (T15). Mr Lawrance responds that the allegations as to that transfer do not relate to the affairs of Sirrah. I do not accept that submission, since it seems to me that a transfer of a company's shares is a matter that relates to the company, even if its shareholders rather than the company would have standing to bring any challenge to the transaction. Mr Lawrance also submits, and I accept, that there is no evidentiary basis for the suggestion of the late Ms Aileen Harris' lack of capacity and any question of undue influence does not give rise to a claim by Sirrah or by the Plaintiffs as its members. There is a further difficulty with any attack on the merit of the 2009 transaction, so far as the transfer of the 50 shares to Harris Health Care appears to correspond to the provision made for the bequest of 50 shares to other beneficiaries under the late Ms Aileen Harris' will at the same time. Little turns upon whether the 2009 transaction would support an order for inspection in isolation from the other claims, because the documents that are sought for inspection in respect of that claim are also relevant in respect of the 2003 claim or relevant to the conduct of Sirrah's affairs generally.
The Plaintiffs' fifth concern related to the sale of the nursing home business, but no criticism was made of the contract that has now been entered for the sale of that business. To the extent that it is suggested that the Plaintiffs have sought, and Sirrah and Mr William Harris and associated entities have not given, various undertakings as to how the proceeds of the sale will be treated, then it will be a matter for the Plaintiffs to seek any appropriate relief in that respect.
Mr Lawrance also recognises that the Plaintiffs brought the application on the basis that they wished to understand Sirrah's historical and current business operations (Harris [21]). Mr Lawrance submits that that basis for the application has been displaced by the contract for the sale of Sirrah's business. I do not accept that submission where that contract has not yet completed, and Sirrah will not dispose of its business until that contract completes, and the documents sought would in any event address issues as to the conduct of Sirrah's business prior to that sale. Mr Lawrance also submits that: "a mere desire to obtain information about a company's past and current business is not a sufficient reason to justify an order for inspection in favour of minority shareholders who are not entitled to manage the company's affairs." I do not accept that submission, at least in circumstances where a plaintiff is a substantial shareholder in a proprietary company, and there are issues, including as to substantial related party transactions, which warrant further inquiry as to the management of that company's affairs.
Mr Lawrance also recognises that the Plaintiffs support the application by reference to their wish to provide information to a commercial funder to ascertain the credit worthiness of Sirrah and whether it may roll over or refinance its borrowings (Harris [23], [25]). Mr Lawrance responds, and I accept, that the provision of documents to a commercial funder to ascertain if Sirrah may roll over or refinance its debts is properly a matter for Sirrah's directors. To the extent that any question of access to information related to the possibility of an offer by the Plaintiffs to purchase Sirrah's shares, in the context of a sale of Sirrah's assets, it appears that that prospect has now largely been displaced by the entry into a contract for the sale of Sirrah's assets. In any event, each of the categories of documents sought on this basis are either supportable on other bases, or otherwise not the proper subject of an order for inspection for other reasons.
Mr Lawrance also recognises that the Plaintiffs support the application on the basis that they wish to investigate and commence proceedings in respect of alleged breaches of duty by Mr William Harris and the late Mathew Harris, as directors of Sirrah. Mr Lawrance submits, and I accept, that there is little specific information identifying any allegations of breach of duty by those directors, a matter to which I referred above. Mr Lawrance also submits that, to the extent that the Plaintiffs have already decided to bring proceedings, and have expressed a final opinion that an established cause of action exists, there is no reason to make orders under s 247A of the Corporations Act in respect of the alleged misconduct: Praetorin Pty Ltd v TZ Ltd above at [40], [70]. Mr Maroya responds (T11-T12) that the Plaintiffs' proposal to commence proceedings is subject to a proper consideration of books and records that may be made available for inspection on this application, and that the contemplated proceedings reflect the Plaintiffs' case for investigation rather than a sufficiency of information to commence the proceedings. Mr Gregory Harris' evidence indicates a proposal to commence proceedings "once Sirrah's books and records have been obtained and considered" (Gregory Harris [70]) and the draft Originating Process that is exhibited to Mr Harris' affidavit identifies the relief proposed to be sought, but does not extend to any pleading of material facts. It seems to me that that this evidence falls short of establishing either a firm intention to commence the proceedings, irrespective of the documents that may be disclosed by this application, or such knowledge of the relevant facts as would displace any need for an inspection of the relevant documents.
In the event, little turns upon whether this purpose would have supported an order for inspection, apart from the other identified purposes, where it would not support any particular category of document sought that is not properly the subject of an order for inspection an another of the bases addressed above.

The Plaintiffs' proposed categories for inspection

I now turn to the categories of documents requested for inspection, which I will address in the order listed in Schedule A to the Originating Process. I should note that Mr Maroya pressed, in oral submissions, for an order to be made under s 247A of the Corporations Act in respect of categories of documents which Sirrah had offered to make available for inspection (T8). It seems to me that it is likely to be preferable to proceed on that basis, given the extent of previous disputes between the parties in respect of the question of inspection and the risk that voluntary arrangements for inspection might miscarry unless supported by an order of the Court.
Paragraph 1 of the Plaintiffs' categories of documents for inspection seeks records setting out details of reimbursements of entitlements of employees of Sirrah to Harris Health Care in FY 2014, by reference to the record of a substantial reimbursement of $875,173 in Sirrah's accounts for FY 2014. Sirrah offers to permit inspection of this category of documents. I am satisfied that the Plaintiffs' application for inspection of documents in this category is made in good faith and for a proper purpose, where significant issues arise in respect of the extent of related party transactions between Sirrah, Harris Health Care and Mr William Harris recorded in Sirrah's accounts, and the Court should exercise its discretion in favour of ordering inspection within this category.
Paragraph 2 of the Plaintiffs' categories of documents for inspection seeks records setting out employees receiving employee entitlements and Sirrah offers to permit inspection of these documents on the basis that the category refers to current employees. I am also satisfied that the Plaintiffs' application for inspection of documents in this category is made in good faith and for a proper purpose, where documents in this category are relevant to an understanding of Sirrah's business affairs and potentially also relevant to the matters to which I referred in respect of proposed category 1. I am satisfied that the court should exercise its discretion in favour of ordering inspection within this category.
Paragraphs 3-5 of the Plaintiffs' categories of documents for inspection seek employment contracts of employees relating to "these transactions", group certificates issued to employees that received "these entitlements" and records setting out details of superannuation payments relating to "employee entitlements". Those paragraphs were initially unlimited in time, although the Plaintiffs limited them in oral submissions to the period from FY 2013 to date. I would not order that documents in these categories be made available for inspection, where the concept of "these transactions", "these entitlements" and "the employee entitlements" is unclear, once it extends beyond the reimbursement of employee entitlements in FY 2014, and no evidence has been led to identify any issue as to employee entitlements or superannuation payments other than in respect of the reimbursement of employee entitlements to Harris Health Care.
Paragraph 6 of the Plaintiffs' categories of documents for inspection seeks records setting out details of all contracts and related party transactions between Sirrah and Harris Health Care, William Harris, Matthew Harris and Maryanne Harris. That paragraph was originally unlimited in time, but the Plaintiffs limited it in oral submissions to the period from FY 2013 to date. I am satisfied that the Plaintiffs' application for inspection of documents in this category is made in good faith and for a proper purpose, where, as I noted above, significant issues arise in respect of the extent of related party transactions between Sirrah, Harris Health Care and Mr William Harris recorded in the Company's accounts. I do not accept Mr Lawrance's submission that no order should be made in that category, because documents falling within that category would necessarily be produced in response to other categories relating to related party transactions. However, I would not make such an order in the form sought, where its formulation would catch every document including any email that sets out any such detail over a period of several years. I would, in principle, make a more limited order for inspection of high level documents or specified classes of documents recording those matters. The parties should seek to agree such a category.
Paragraphs 7-9 of the Plaintiffs' categories of documents for inspection relate to correspondence between the late Ms Aileen Harris on the one hand and Harris Health Care and Sirrah's directors on the other, Sirrah's share register since 2002 and Sirrah's copy of its memorandum of association and articles of association. These documents appear to relate to the challenge to the 2003 transaction and the 2009 transaction. Although there may be a question as to how a claim could be brought by the Plaintiffs in respect of these transactions given the passage of time and the matters to which I have referred above, Sirrah did not oppose inspection of documents in these categories. I am satisfied that the Plaintiffs' application for inspection of documents in these categories is made in good faith and for a proper purpose, where the Plaintiffs as shareholders in Sirrah and executors of the late Ms Aileen Harris' estate can arguably properly be concerned to understand the previous dealings in its shares, even if no cause of action could ultimately arise from that investigation. On balance, I would make an order for inspection of documents in these categories under s 247A of the Corporations Act.
Paragraph 10 of the Plaintiffs' categories of documents for inspection sought inspection of all submitted tax returns of Sirrah from FY 2002 to FY 2016, although the Plaintiffs limited that category in oral submissions to tax returns for the period from 2010 to date. I am satisfied that the Plaintiffs' application for inspection of documents in this category is made in good faith and for a proper purpose, where, as I noted above, significant issues arise in respect of the extent of related party transactions between Sirrah, Harris Health Care and Mr William Harris recorded in the Company's accounts and Sirrah's tax returns are likely to cast light upon those questions. I would make an order for inspection of documents in this category under s 247A of the Corporations Act.
Paragraph 11 of the Plaintiffs' categories of documents for inspection related to all issued share certificates from 2002 to the present and Sirrah also offered to make these documents available for inspection. An order should be made for these documents to be made available for inspection on the same basis as the documents specified in paragraphs 7-9 of the Plaintiffs' categories of documents for inspection.
Sirrah did not offer inspection of documents in paragraphs 12 and 13 of the Plaintiffs' categories of documents for inspection and these categories were not pressed by the Plaintiffs in oral submissions, on the basis that they had been overtaken by the sale of Sirrah's business.
Paragraphs 14 and 15 of the Plaintiffs' categories of documents for inspection refer to all minutes of directors' meetings from FY 2002 until FY 2016 and all records of shareholder meetings from FY 2002 until FY 2016. Sirrah offered to produce for inspection such minutes for February 2003, for any other board meeting between February 2003 and May 2003 at which the issue or transfer of shares to Harris Health Care was discussed and since FY 2016. I am satisfied that the Plaintiffs' application for inspection of documents in the wider categories is made in good faith and for a proper purpose, given the wider issues raised in this application including as to related party transactions and the significance of minutes of directors meetings and shareholders meetings to the basis of corporate governance of a company. I will make orders for inspection of these categories of documents in the form sought by the Plaintiffs under s 247A of the Corporations Act.
Paragraph 16 of the Plaintiffs' categories of documents for inspection sought production of all invoices issued to Sirrah from Harris Health Care "and any related party transactions with Sirrah". Sirrah offered to permit inspection of all invoices issued to Sirrah from Harris Health Care since FY 2016 and all invoices recording any related party transactions since FY 2016 and the Plaintiffs restricted this category, in oral submissions, to the period from FY 2013 to date. I am satisfied that the Plaintiffs' application for inspection of documents in the wider categories is made in good faith and for a proper purpose, given the extent of related party transactions disclosed in Sirrah's accounts. I will make an order under s 247A of the Corporations Act permitting inspection of all invoices issued to Sirrah from Harris Health Care, and all invoices recording any related party transactions with Sirrah, for the period from FY 2013 to date.
Paragraph 17 of the Plaintiffs' categories of documents for inspection sought production of a copy of the management and remuneration agreement between Harris Health Care and Sirrah. Sirrah offered to produce documents in that category for inspection and I am satisfied that the Plaintiffs' application for inspection of documents in this category is made in good faith and for a proper purpose, given the extent of related party transactions disclosed in Sirrah's accounts. I am satisfied that an order for inspection should be made under s 247A of the Corporations Act in that category.
Paragraph 18 of the Plaintiffs' categories of documents for inspection sought copies of all previous management and remuneration agreements between Harris Health Care and Sirrah, initially unlimited in time, but the Plaintiffs limited that category in oral submissions to the period FY 2013 to date. Sirrah did not agree to production of documents in this category. I am satisfied that an order should be made under s 247A permitting inspection of documents in this category, for the same reason that such an order should be made in respect of the documents specified in paragraph 17 of the Plaintiffs' categories of documents for inspection.
Paragraph 19 of the Plaintiffs' categories of documents for inspection sought production of all documents and records relating to the Division 7A loans referred to in the financial accounts for Sirrah in financial year statements since 2002. There was no evidence in this application of any such loans referred to in financial accounts prior to 2013, since no accounts prior to that financial year were tendered. Sirrah agreed to produce documents recording the Division 7A loans referred to in the financial accounts for Sirrah in FY 2016, and the Plaintiffs limited this category in oral submissions to such documents for the period FY 2012 to date. I am satisfied that the Plaintiffs' application for inspection of documents in the wider category is made in good faith and for a proper purpose, given the evidence of substantial loans to related parties disclosed in Sirrah's accounts in the period since FY 2012. Inspection should be ordered in that category, under s 247A of the Act, for the period from FY 2012 to date, in which the documents in evidence recorded the existence of such loans.
Paragraph 20 of the Plaintiffs' categories of documents for inspection sought details of securities that Sirrah has over shares held by Harris Health Care in Sirrah. Sirrah did not offer to produce documents in that category and there is no evidence to indicate the basis for any inquiry as to that matter. I am not satisfied that inspection should be permitted of documents in that category.
Paragraphs 21-25 of the Plaintiffs' categories of documents for inspection seek documents and records in respect of certain matters, as to which Sirrah offered more limited categories of documents, and the Plaintiffs pressed in oral submissions for inspection of documents for the period FY 2013 to date. I am satisfied that the Plaintiffs' application for inspection of documents in these categories is made in good faith and for a proper purpose, where the existence of loans, payments for management services, and other dealings between William Harris and Sirrah are recorded in Sirrah's financial statements for the period from FY 2013 to date. However, inspection should be ordered in the categories proposed by Sirrah, which are more precise than those formulated by the Plaintiffs, and for the period FY 2013 to date.
Paragraphs 26 and 27 of the Plaintiffs' categories of documents for inspection related to the most recent business plan of Sirrah and the Cabrini Nursing Home/Aged Care Facility which it operates and records of land owned by Sirrah. Sirrah offered to produce documents in these categories and I am satisfied that the Plaintiffs' application for inspection of documents in these categories is made in good faith and for a proper purpose, where documents in these categories are relevant to an understanding of Sirrah's business affairs. An order for inspection of documents in these categories should be made under s 247A of the Corporations Act.
Paragraph 28 of the Plaintiffs' categories of documents for inspection was not pressed by the Plaintiffs, in oral submissions, because of the sale of Sirrah's business.
Paragraph 29 of the Plaintiffs' categories of documents for inspection related to up to date management accounts of Sirrah. Sirrah offered to produce documents in this category, with a subtle reformulation which both parties ultimately accepted made no difference. I am satisfied that the Plaintiffs' application for inspection of documents in this category is made in good faith and for a proper purpose, where documents in this category are relevant to an understanding of Sirrah's business affairs. An order for inspection of documents in this category should be made under s 247A of the Corporations Act.
Paragraph 30 of the Plaintiffs' categories of documents for inspection sought production of "[r]ecords of all dividends or drawings from Sirrah Pty Ltd bank accounts since 2nd May 2003". I accept Mr Lawrance's submission that it is not appropriate to make such an order, in respect of dividends, where the payment of dividends will be recorded in Sirrah's financial accounts and the concept of "drawings" in its application to a company, as distinct from a partnership, is both uncertain and potentially so wide as to be oppressive. I will not order access to documents within that category.
Paragraphs 31-35 of the Plaintiffs' categories of documents for inspection sought several categories of documents, initially for the period since 2003, although the Plaintiffs restricted those categories in oral submissions to the period from FY 2012 to date. Sirrah offered to produce such documents for inspection only for FY 2016. I am satisfied that the Plaintiffs' application for inspection of documents in this category is made in good faith and for a proper purpose, where the accounts in evidence record significant professional fees and management fees and other expenses, and a substantial shareholder in Sirrah could, in the relevant circumstances, properly wish to understand the nature of those fees and expenses. An order for inspection of those documents should be made for the years FY 2012 to date.
Paragraph 36 of the Plaintiffs' categories of documents for inspection sought production of documents "pertaining" to a loan impairment recorded in Sirrah's FY 2016 financial statements, and Sirrah offered to produce documents recording details of that impairment. I am satisfied that the Plaintiffs' application for inspection of documents in this category is made in good faith and for a proper purpose. However, it seems to me that the concept of "pertaining to" is unreasonably wide, and that inspection under s 247A of the Act should be ordered in the narrower category proposed by Sirrah.
Paragraphs 37 and 38 of the Plaintiffs' categories of documents for inspection sought credit card statements for all directors, senior management of Sirrah, Harris Health Care and all descendant children and grandchildren from Sirrah and Harris Health Care. Presumably, those categories had some unarticulated nexus with Sirrah, beyond the possibility that such credit card statements might be in Sirrah's possession. I accept Mr Lawrance's submission that there is no evidentiary basis for making orders for inspection in these categories, where there is no evidence raising any question of misuse of credit cards issued by Sirrah in respect of any of those persons.

Orders and costs

The Plaintiffs have been successful in obtaining orders for inspection of a narrower range of documents than they had sought and Sirrah will be required to make available for inspection a wider range of documents than it offered to make available. In these circumstances, my preliminary view is that there should be no order as to the costs of the application, although I will hear the parties, briefly, if they seek to contend to the contrary.
I direct the parties to bring in, within 7 days, agreed orders to give effect to this judgment including as to costs, or, if there is no agreement between them, their respective draft minutes of order, and submissions not exceeding 10 pages in one and a half spacing as to the differences between them, indicating whether an oral hearing is requested.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 07 December 2017

Family Provision Act 1982(NSW)

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