ACEHILL INVESTMENTS PTY LTD v INCITEC LTD No. SCCIV-02-1419 [2002] SASC 344

On 11 October, I heard the applications. I dismissed Incitec's application to transfer Acehill's application to inspect documents to the Supreme Court of Victoria for reasons to be published. Counsel for Incitec then sought an adjournment to file affidavits in answer to the substantive application of Acehill. I granted an adjournment to Monday, 14 October. I made directions as to the exchange of affidavits and submissions over the weekend. After hearing the parties on 14 October, I granted the application making the orders set out at the foot of these reasons. I said I would publish reasons later. I set out below my reasons for dismissing Incitec's application and granting Acehill's application. I first set out the facts leading to the respective applications.

Acehill Investments Pty Ltd ("Acehill") is a wholly owned subsidiary of Elders Australia Ltd which in turn is a wholly owned subsidiary of Futuris Corporation Ltd.

Incitec is a public company registered in Queensland. Its registered office and principal place of business is at Paringa Road, Gisbon Island, Murarrie, Queensland. Its shares are listed on the Australian Stock Exchange.

Incitec has issued 131,757,149 ordinary fully paid shares. Incitec has two major shareholders. They are Orica Investments Pty Ltd ("Orica"), a subsidiary of Orica Ltd, a company listed on the Australian Stock Exchange, which holds 77 per cent of the shares in Incitec and Acehill which holds 20.8 per cent of the shares. The remaining 2.2 per cent of the shares are held by other shareholders. Acehill acquired its shares by purchases on the market at various times between November 1988 and February 2002 at a total cost of some $167.7 million.

Orica is able to control Incitec not only through its shareholding but also through the board of directors. Five of the seven directors of Incitec are nominees of Orica. Acehill does not have any representation on the board of Incitec.

The business of Incitec has two major aspects. The first is a fertiliser business. Incitec imports, manufactures and distributes a broad range of fertiliser in all States of Australia except Western Australia and Tasmania. The second is an industrial chemicals business focussed primarily on the production of ammonium nitrate principally used for explosives. I will refer to these businesses respectively as the "fertiliser business" and the "industrial chemicals business".

On 29 August 2002 Incitec announced a proposal for a major restructuring of its business activities. On about 22 September 2002 Incitec sent an Explanatory Statement to its members There are three aspects of the proposed restructuring. They are

(1) a proposal to separate the fertiliser and industrial chemicals businesses which has been called in the jargon of the commercial world, "the demerger";

(2) a proposed acquisition of Incitec's industrial chemical business by Orica; and

(3) a proposed merger of Incitec's fertiliser business with a company called Pivot Ltd.

The proposed separation of the fertiliser and industrial chemicals businesses of Incitec is the first step in the proposed restructuring. If approved, Incitec will be restructured into two companies. Incitec would retain the fertiliser business. A new company, Industrial Chemicals Ltd, would hold all of Incitec's other assets which largely represents its industrial chemicals business. It is proposed to effect this proposal by way of a reduction of capital and scheme of arrangement so that the industrial chemicals business would be owned by an unlisted public company, Industrial Chemicals Ltd ("Industrial Chemicals"), which in turn would be owned by the existing shareholders of Incitec in proportion to the present shareholdings of each in Incitec.

If the proposed separation of the fertiliser and industrial chemicals businesses is approved, the other two steps may follow. However, as the Explanatory Statement concerning the proposal states, there is no assurance that those next two steps will proceed. "Each is conditional on various approvals including regulatory, shareholder and court approvals."

The second step in the proposal is that Industrial Chemicals will seek to cancel all of the shares it has on issue after the demerger except those held by Orica. Thus, Orica will then own all of the shares in Industrial Chemicals. All other shareholders would receive a cash payment of between $2.90 and $3.15 per share for their shares in Industrial Chemicals. Approval of the first step is a condition precedent to Industrial Chemicals buying the minority shareholdings.

The third step is that Incitec will pursue a merger with Pivot Ltd ("Pivot"). The new company will be called Incitec Pivot Ltd. As part of the merger, Pivot shareholders will receive Incitec shares. If it proceeds, this step will result in 54 per cent of the shares being held by Orica, 30 per cent of the shares being held by shareholders in Pivot, 15 per cent by Acehill and 1 per cent by other shareholders in Incitec.

On 20 September 2002 Hansen J in the Supreme Court of Victoria made orders calling two meetings of shareholders in Incitec and directing the delivery of an Explanatory Statement to shareholders. The Explanatory Statement was sent on about 22 September 2002. It included the report of an independent expert Grant Samuel & Associates Pty Ltd ("the Grant Samuel Report"). The expert who prepared the Grant Samuel Report was a Mr Cooper. The meetings have been called for Tuesday, 22 October 2002. The only business at those meetings is to consider resolutions to enable the separation of Incitec's fertiliser and industrial chemicals businesses, the first step in the above proposals. The meetings will not deal with business relating to the second and third steps of the proposed restructuring. Hansen J ordered that proxy forms must be delivered to Incitec by 10.00am on Friday, 18 October 2002.

On 29 August 2002 Incitec and Orica each announced among other things the merger of Incitec's fertiliser operations with Pivot. The announcement by Incitec was jointly made with Pivot. Included in that announcement was the statement that "Incitec Fertilisers is the largest of the three business divisions" of Incitec.

Acehill has a number of concerns about the proposed restructuring. They stem from material in the Explanatory Statement and in the Grant Samuel Report. They include the following:

(1) Acehill believes that there is a risk that the Industrial Chemicals buy-out proposal may not proceed because Industrial Chemicals will not have funding of the order of $87 million to $95 million to purchase the interests of minority shareholders. The Explanatory Statement says that a portion of the proceeds will be funded by a loan from Orica but Orica is relieved of that obligation if there is a material adverse change in relation to Industrial Chemicals or its business.

(2) Acehill is concerned that transaction costs (primarily stamp duty and fees to advisors) for the proposed demerger are estimated to be $20 million and that those costs will be paid by Incitec and Industrial Chemicals.

(3) An indemnity deed between Incitec, Industrial Chemicals and Orica is disclosed which requires Incitec to pay $5 million to Orica before 30 September 2002 in relation to certain contingencies related to the sale by Incitec of its shareholding in Crop Care Australasia Pty Ltd ("Crop Care") and the industrial chemicals business. If the demerger proposal is not approved and implemented, "there is no scope for Incitec to seek a refund of that payment" (page 35 of the Explanatory Statement).

(4) Acehill is concerned that a relevant document has not been included in the Explanatory Statement. That document is the demerger co-operation deed. By contrast, the Explanatory Statement includes a demerger implementation deed.

In addition, Acehill has concerns about the Grant Samuel Report. The Grant Samuel Report considers the separation of the two businesses, the demerger as it is called, in the context of the second step, namely, the purchase of the shares in Industrial Chemicals. The report considers whether the offer by Orica to purchase the industrial chemicals business is fair and reasonable. In particular, Acehill has concerns about -

(1) The assumptions on which the Grant Samuel Report proceeds in relation to nitrogen products which constitute about 81 per cent of the turnover of the industrial chemicals business.

(2) An assumption that has been made in the Grant Samuel Report in respect of the value of the industrial chemicals business. Acehill asserts, and it has not been refuted, that it is a critical assumption. The assumption concerns the price at which the industrial chemicals business sells ammonium nitrate to Orica. For every $10 per tonne movement in the price, there is a corresponding increase in pre-tax earnings of the industrial chemicals business of $2.4 million. The Grant Samuel Report does not disclose the ammonium nitrate prices used in the valuation "for commercial reasons" but it states that the price is to be renegotiated.

(3) The valuation methodology in the report. Mr Cooper of Grant Samuel has used a discounted cash flow method for the valuation ("the DCF method"). The Grant Samuel Report notes that the DCF method is very sensitive to small changes in assumptions. The model for the DCF method is not stated in the report.

(4) The Grant Samuel Report values the industrial chemicals business at between $315 million and $365 million. It then states that a price of $315 million is a fair and reasonable price, notwithstanding that it is the lowest in the range of values.

(5) Acehill has examined the annual reports for the year ended 30 September 2001 of both Incitec and Orica. Both disclose transactions with related parties. The Incitec report disclosed transactions totalling $112.473 million with entities subject to common control. The Orica report does not disclose any transactions with Incitec.

In short, Acehill, which has an investment totalling almost $168 million in Incitec, is concerned that the proposed restructure will result in a fundamental change in that investment and seeks to ensure that it is in possession of all relevant facts so that it is in a position to make an informed judgment on the proposals outlined in the Explanatory Statement. It is also concerned that it will receive a fair and proper value for its shares in Incitec if the second stage of the proposal proceeds. In particular,

● Acehill seeks to ensure that it as well as other minority shareholders are offered a fair price for their investment in the industrial chemicals business of Incitec;

● it seeks to ensure that Incitec is not inappropriately incurring transaction costs and other costs related to the restructuring proposals;

● it seeks to ensure that Incitec and Industrial Chemicals have appropriate arrangements in place for the continuing operation of Industrial Chemicals if the demerger is approved;

● as the Grant Samuel Report discloses that Incitec has developed a proposal to develop a third nitric acid plant which has the potential to add substantial value to the industrial chemicals business, Acehill is concerned to understand the circumstances and the true value of this proposal given its potential to add substantial value to Incitec and the proposed acquisition of the industrial chemicals business of Incitec by Orica;

● given that Incitec and Orica have agreed that Incitec will before 30 September 2002 pay $5 million in respect of the Crop Care indemnity arrangements and the payment of the sum of $5 million has been made on terms that, if the demerger is not approved and implemented, it cannot be refunded, Acehill is concerned to ascertain whether this is a penalty imposed upon Incitec shareholders if the demerger is not approved; and

● as Acehill believes that the demerger co-operation deed will have a material bearing on the continuing activities of Incitec and Industrial Chemicals and thus will be material to its consideration of the demerger proposal, it seeks to examine that agreement.

In addition to the above, Achill has consulted an expert valuer of businesses, Lonergan Edwards. Mr Craig Edwards of the firm has advised that there are deficiencies and inconsistencies in the Grant Samuel Report and that it substantially undervalues the industrial chemicals business.

The proposed restructuring of Incitec will plainly have a considerable impact upon its shareholders and, in particular, upon its minority shareholders. Incitec is controlled by Orica. Orica controls the board of directors of Incitec. Acehill does not have any representation on the board. Acehill plainly has no capacity to obtain any information beyond that which is supplied by Incitec in annual reports or in the Explanatory Statement.

On 3 October 2002 Acehill wrote to Incitec seeking to inspect the list of documents. The letter asked for a response by no later than 12.00 noon on 8 October. Incitec's solicitors replied by letter dated 8 October but sent on the morning of 9 October refusing to allow inspection. On 8 October Acehill instituted these proceedings. The application was listed for hearing on 11 October. An exchange of letters between Fisher Jeffries, the solicitors for Acehill and Minter Ellison, the solicitors for Incitec ensued. Minter Ellison asked that the application be transferred to the Supreme Court of Victoria. Fisher Jeffries refused. Incitec applied on 11 October for an order transferring Acehill's s 247A application to the Supreme Court of Victoria.

The written application was for an order to transfer the proceedings to the Supreme Court of Victoria pursuant to s 5(2) of the Jurisdiction of Courts (Cross Vesting) Act 1987 (SA). I permitted Incitec to amend its application to bring it pursuant to s 1337 of the Corporations Act, which was the appropriate provision.

Mr Wells QC, who appeared for Incitec on this application, referred to the fact that on 22 September Hansen J had made orders pursuant to s 411 of the Corporations Act convening meetings of Incitec and, in particular, had made an order pursuant to s 411(1) approving the Explanatory Statement. There was evidence that Hansen J could hear the application on Monday, Tuesday, Wednesday or Thursday, 14 to 17 October. He contended that an order should be made transferring Acehill's application to the Supreme Court of Victoria for hearing by Hansen J for the following reasons.

1. That the gravamen of Acehill's application under s 247A of the Corporations Act was that there were material omissions from the Explanatory Statement. Mr Wells contended that Acehill's application basically involved setting aside the approval of the Explanatory Statement by Hansen J.

2. That there was a real potential for orders to be made on Acehill's application which would be inconsistent or incompatible with the orders made by Hansen J on 22 September 2002.

3. That as a matter of comity and courtesy, this Court should transfer the application to the Supreme Court of Victoria.

Mr Hoffmann, who appeared for Acehill, contended that the court should not displace Acehill's lawful choice of forum and that a transfer would cause delay which might render the application by Acehill nugatory. He added that there was nothing which particularly attracted the jurisdiction of the Supreme Court of Victoria other than that the solicitors for Incitec carried on business in Melbourne.

As a general rule, once a court is seised of issues relating to the administration of a company, it is desirable that all other ancillary or incidental issues should be heard and determined by that same court. That principle is dictated not only by considerations of comity and courtesy between courts, but also, more importantly, to ensure that inconsistent orders are not made. This is but one aspect of the principle applied by Davies J in Re Sabri (1995) 60 FCR 131 at 133 and expressed in these terms by Burchett J in Re McKean (unreported, Federal Court of Australia, 16 April 1996):

"... where the exercise of jurisdiction is likely to involve a question whether an order of another superior court should be contradicted, or should be so dealt with that the result appears to be a contradiction of it, then considerations of comity between the courts, and indeed of the ordinary exercise of courtesy in dealings by this court, necessarily involve that this court should consider whether it is better to transfer the matter to the other court so as to give it the opportunity of considering whether its order ought to be insisted upon, or whether it should be contradicted."

I applied that principle in Emanuel Management Pty Ltd (in liq) v Fosters Brewing Group Ltd [1999] SASC 68; (1999) 73 SASR 303. However, as Burchett J pointed out in Re McKean immediately after the passage just cited, other specific considerations might arise in particular cases which prevail over the interests of comity and courtesy. It is appropriate to add that the court which is being asked to transfer the matter retains an overriding discretion and must have regard to the wider consideration of the interests of justice.

In the ordinary course, it would have been appropriate to transfer this application to the Supreme Court of Victoria. There are, however, factors which militate against doing so. The first is the obvious urgency in dealing with Acehill's application. The meeting of shareholders to consider the scheme has been ordered for 22 October. Proxy forms must be lodged before 10.00am on 18 October. In other words, the meeting is only ten days away and proxy forms must be lodged within one week. Although Hansen J is available to hear the application next week, there would be an inevitable delay in hearing and determining the application if it were transferred. In an affidavit filed in support of its application, Incitec has indicated its desire to be able to answer affidavits filed on behalf of Acehill in support of the application. Orders would have to be made in Victoria to permit that course and that would necessarily further delay the hearing and determination of the issues. In consequence, there is a real risk that by the time when the Supreme Court of Victoria is able to deal with the merits of the application any order for inspection which it might be prepared to make would be futile as Acehill would have inadequate time to inspect the relevant documents. In short, time does not permit the transfer of the application.

Secondly, I do not think that there is any sensible risk that this Court is being asked to make orders or will make orders which will be inconsistent or incompatible with the orders made by Hansen J and, in particular, with His Honour's order approving the Explanatory Statement. I do not accept Mr Wells' contention that the application by Acehill is grounded on the premise that there are material omissions in the Explanatory Statement. Instead, Acehill is simply seeking further information in order that it may make an informed decision concerning its very substantial investment in Incitec, a decision which must be made because of the restructuring proposed by Incitec which is controlled by Orica Investments and ultimately by Orica. Acehill does not seek to challenge the Explanatory Statement but, instead, seeks further information. The fact that all the information it seeks is not contained in the Explanatory Statement does not amount to an attack upon the adequacy of the Explanatory Statement nor is it a challenge to the order made by Hansen J approving it. An order for inspection does not imply that the order approving the Explanatory Statement was wrong. If this Court is satisfied that Acehill is entitled to inspect, the order goes no further than enabling Acehill to inspect and thereby ascertain further information. After inspection, Acehill may be willing to agree with the proposals in the Explanatory Statement. If inspection causes Acehill to believe that the Explanatory Statement should not be approved, it is at liberty to raise those issues on Incitec's application under s 411(6) to approve the scheme. In short, s 247A enables no more than a right of inspection. If the inspection leads to any application in respect of the proposed scheme of arrangement, that application must be made to the Supreme Court of Victoria as the court seised of the application under s 411.

The Supreme Court of Victoria has not yet approved the scheme outlined in the Explanatory Statement. The court will not consider the business or commercial efficacy of the scheme until it hears an application that it make orders pursuant to s 411(6) of the Corporations Act: Re ACM Gold Ltd [1992] FCA 89; (1992) 34 FCR 530, 534; Re NRMA Ltd (No 1) [2000] NSWSC 82; (2000) 156 FLR 349 at 358. The court will then learn of the outcome of the meetings, will hear the submissions of interested parties, and will determine whether to approve the scheme.

I am reinforced in my conclusion that I should hear Acehill's application by reason of the fact that the Corporations Act provides one national scheme. This Court has jurisdiction to make the orders and all courts having jurisdiction under the Corporations legislation should act in aid of each other: s 1337B and s 1337G.

I have had regard also to those factors identified in J N Taylor Finance Pty Ltd (in liq) v BCF (Bond Corporation Finance) Ltd (1991) 55 SASR 428 at 436 which, mutatis mutandis, would be relevant to an application to transfer. None of those require that these proceedings be transferred. Furthermore, I am satisfied that the plaintiff is not forum shopping. Its principal place of business is in Adelaide. There is no connection between Incitec and Victoria other than that its solicitors conduct their business in Melbourne. The principal place of business of Incitec is at Murarrie, which is a short distance from Brisbane, and the books and documents which Acehill seeks to inspect are located at that office. There is no material consideration touching upon the location and convenience of witnesses or the cost of bringing witnesses to a hearing in this State.

For all of these reasons, I believe that the interests of justice require that this Court hear and determine the application. I therefore dismiss Incitec's application to transfer the application by Acehill to the Supreme Court of Victoria.

I repeat that, in the ordinary course, the application should have been made to the Supreme Court of Victoria. It is only the urgency of the matter which stood in the way of an order transferring the application to that court. This was a special case and is not to be understood as condoning applications pursuant to s 247A being issued in one court while proceedings under s 411 are on foot in another and the s 247A application relates to the issues which are the subject of the proceedings under s 411.

The Section 247A Application

After I had dismissed Incitec's application to transfer these proceedings to the Supreme Court of Victoria, Mr Wells QC applied for an adjournment to enable Incitec to file affidavits in response to those filed on behalf of Acehill. Given the urgency of the matter, I made orders requiring the exchange of affidavits and the exchange of outlines of argument over the weekend. I heard the application at 8.00am on Monday, 14 October.

The court may make an order under s 247A only if it is satisfied that Acehill is acting in good faith and that the inspection is to be made for a proper purpose: s 247A(1). The provisions of s 247A(3) to (5) are not relevant as they relate to applications for inspections by persons who have been granted leave to bring proceedings under s 237 or intend to apply for leave under that section. Thus, s 237A(5) does not narrow the scope of relief available under s 247A(5): Lucy v Prescribing Biochemists Pty Ltd [2000] NSWSC 1137.

I have examined the decisions set out in the appendix to these reasons. Most concern provisions which have existed since 1985 permitting the court to order inspection of books of a company. Those provisions also stated that a court may only make an order for inspection if satisfied that the applicant is acting in good faith and that the inspection is sought for a proper purpose. Although not in the same terms as s 247A, those provisions were to the same effect so that the principles have equal application to the determination of applications under s 247A. They establish the following propositions relevant to the issues in this application.

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: Barrack Mines Ltd v Grants Patch Mining Ltd [1988] 1 Qd R 606; Knightswood Nominees Pty Ltd v Sherwin Pastoral Company Ltd (1989) 7 ACLC 536 at 540 - 541.

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: Intercapital Holdings Ltd v M.E.H. Ltd (1988) 6 ACLC 1068 at 1074.

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); Re Augold NL [1987] 2 Qd R 297 at 308 - 309; Re Humes Ltd [1987] VicRp 43; (1987) 5 ACLC 64 at 68 - 69; Grants Patch Mining at 107; 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: Intercapital Holdings at 1074 - 1075; or where a shareholder seeks to ascertain facts for the purpose of considering a takeover offer: Knightswood Nominees Pty Ltd v Sherwin Pastoral Company Ltd at 539. Other examples are provided in a number of the cases listed in the appendix.

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: Re Humes Ltd at 70; Grants Patch Mining at 109 - 110; Cescastle Pty Ltd v Renak Holdings Ltd (1991) 9 ACLC 1333 at 1335.

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: Re Humes Ltd at 68 - 69; Grants Patch Mining Ltd at 614.

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: Re Humes Ltd at 70; Grants Patch Mining at 615.

7. Applicants do not necessarily lack a proper purpose merely because

(b) they will, after inspection, have more information than other members: Re Humes Ltd at 70.

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: Re Claremont Petroleum NL (No 2) [1990] 2 Qd R 310 at 314. I emphasise that this is a general rule. There may be occasions where it is proper to admit inspection of board papers. I examine this question in a moment.

9. Even where an applicant is acting bona fide and has shown a proper purpose, the court has a discretion whether to order inspection: Re Humes Ltd at 70.

Incitec opposed the application on the grounds that Acehill's holding company, Elders, is a substantial dealer in fertilisers and trades with Incitec. It was asserted that Elders was seeking, through Acehill, to secure undertakings from Incitec in respect of the distribution of fertiliser products and to secure a seat on the board of Incitec Pivot. It was also contended that the application was to assist in securing a shareholding of 20 per cent of the shares in Incitec Pivot and that Elders could gain access to information bearing upon prices it pays Incitec. These are legitimate concerns but I am satisfied they are ill-founded. Incitec was also concerned that the real purpose was to increase the price to be paid for the cancellation of the shares in Industrial Chemicals to the top end of the range of values assessed in the Grant Samuel Report. Even if the latter assertion is correct, it is not evidence of an improper purpose. Acehill is entitled to ascertain whether the price being offered is fair and reasonable.

Acehill has a very substantial interest in Incitec and it is entitled to take this reasonable step to ensure that its interests are not being prejudiced by the controlling shareholder in proposing the scheme. In seeking inspection, Acehill is not seeking to challenge a mere managerial decision. Plainly, Incitec proposes a major restructuring affecting the interests of its shareholders. Acehill, as a substantial shareholder by some years, is entitled to the information which will enable it to determine whether or not its substantial financial interests as a shareholder are being adversely affected and to make an informed decision when voting at the meeting called by order of the Supreme Court of Victoria. Acehill is entitled to ascertain that the price for its shares is fair and reasonable. It is entitled to ensure that other aspects of the proposed restructuring do not adversely affect its interests. In short, Acehill is entitled to ascertain whether its interests are being fairly and reasonably treated under the proposed scheme. I am, therefore, satisfied that Acehill has genuine concerns and that it has a proper purpose in seeking inspection. I am entirely satisfied that it is acting in good faith. Acehill has satisfied the requirements of s 247A and I am further satisfied that in the exercise of my discretion I should make an order authorising inspection of certain books and documents of Incitec by identified persons.

Although Acehill is entitled to inspect documents, there are particular issues to be addressed as to the documents to be inspected and who is to inspect them. These issues need to be resolved before an order for inspection is made. I turn to examine them.

I took the view that the concerns of Incitec might stem in part from the wide-ranging nature of the documents of which inspection was sought and the fact that Acehill had applied for eight persons, including three executives of Acehill, to conduct the inspection.

At the conclusion of the hearing on 11 October, I therefore suggested to Mr Hoffmann that Acehill might reconsider both the documents it sought to inspect and those who might inspect them. When the hearing resumed on Monday, 14 October, both the list of documents to which inspection was sought and the list of persons to inspect had been reduced. This has quite considerably narrowed the controversy between the parties.

The four persons which Acehill sought to conduct the inspection were Mr Sadlon, the secretary of Acehill, Mr Edwards, the expert valuer retained by Acehill, Mr Watts and Mr Karas, solicitors in the firm of Fisher Jeffries, solicitors to Acehill.

Given that there are issues as to the valuation of the industrial chemicals business, it is obviously appropriate that Mr Edwards, as an expert in this field of valuation, be permitted to inspect.

As Mr Sadlon is a senior executive of a company whose holding company trades at arms length with Incitec, it was plainly inappropriate for him to inspect the documents. It was particularly inappropriate for him to inspect board papers. The occasions will be rare indeed when a senior executive of one company will be entitled to inspect the board papers of a company with which that company or a related company trades at arms length. It is not unreasonable to suppose that, in the course of the inspection, Mr Sadlon might come across commercially sensitive documents and thereby give Elders a commercial advantage in its dealings with Incitec. Furthermore, one of the main aspects of the application by Acehill is to obtain information to enable it to assess the proposal outlined in the Explanatory Statement and, in particular, to consider whether the price being offered on the cancellation of the shares in Industrial Chemicals is fair and reasonable. As Acehill has instructed Mr Edwards to advise it on the issues in the Grant Samuel Report, it is sufficient for Mr Edwards to inspect and report to Acehill. There is no requirement for Mr Sadlon to inspect. If it is necessary for Acehill's legal advisers to obtain instructions, an application can be made to the court for leave to show specific documents to Mr Sadlon.

There are aspects of legal principle involved in the proposed scheme, the most obvious being the questions relating to payment of transaction costs. It is appropriate, therefore, to appoint solicitors to conduct an inspection to that end. Subject to the issue which I next identify, it is appropriate to permit the two named solicitors to conduct that task.

Acehill sought to be able to inspect three classes of documents which include board papers. They were:

"1. Board papers, minutes and other internal briefing papers of Incitec Ltd (ACN 010 767 262) ('Incitec') from 1 April 2002 related to the demerger referred to at page 5 of the Grant Samuel Report dated 13 September 2002 ('the Grant Samuel Report').

7. Books disclosing or relating to the proposal to develop a third nitric acid plant (as referred to at page 43 of the Grant Samuel Report), including board or management reports and management documents including correspondence and records of communications or deliberations in relation thereto, to the extent provided to Grant Samuel.

8. A copy of the Indemnity Deed between Incitec, ICL and Orica Investments Pty Ltd (as referred to at page 35 of the Incitec Explanatory Booklet dated 22 September 2002 ('the Explanatory Booklet')), any submissions or presentations made to the Incitec Board in connection with the Indemnity Deed and copies of all documents (including correspondence and records of communications or deliberations) relating to the arrangements set out in the Indemnity Deed."

Incitec opposed the application on the ground that it was unnecessary to examine board papers. It was submitted that it was appropriate to inspect only documents relating to the results of the decisions of directors. Reliance was placed on the following reasoning of McPherson J in Re Claremont Petroleum NL (No 2) at 314:

"In reaching conclusions on these matters I have acted on the principle that s. 265B is intended to enable a member of a company to inspect its books in order to obtain information about matters that, as member or shareholder in the company, he ought to be informed of by the company. The procedure under s. 265B is not intended as a form of or substitute for inspection of documents after discovery on affidavit or answers to interrogatories in pending litigation. I therefore consider that in many circumstances a shareholder ought not to be assisted by an order under s. 265B to examine decisions of directors, or the reports or records leading to those decisions; but I think that in a case like this he is entitled by inspection of books to find out what the results of those decision (sic) are; that is to say, whether the company has entered into agreements, and with whom, disposing of corporate assets of value, and for what consideration, and what has happened to those assets or the consideration given in return for them." (Section 265B is the statutory predecessor of s 247A.)

I respectfully agree with those remarks as a statement of general principle. However, in the particular circumstances of this case, there are reasons why it is appropriate to depart from that general principle. First, Mr Cooper, who prepared the valuation in the Grant Samuel Report, reviewed board papers when preparing the report. He has stated in an affidavit that "most of the information in those papers was immaterial to our report". It is a corollary of that statement that there was some relevant information in the board papers. Furthermore, in relation to the documents referred to in para 7, Mr Cooper has sworn that the "Orica board papers and correspondence on the status of the third nitric acid plant were material to our report". The indemnity deed referred to in para 8 is relevant and it is appropriate that any submissions in relation to it should be inspected. This is not an instance of a company making a decision and a person wanting to inspect documents relating to that decision. Instead, this is an instance of persons seeking to examine what is germane to the determination of value. However, in order to protect sensitive commercial information, Mr Edwards has undertaken and was ordered not to disclose any supply arrangements which he believes are commercially sensitive.

I am persuaded by Mr Strawbridge, who appeared for Incitec on this application, that it is proper to permit only one solicitor to inspect board documents. The inspection is necessary to examine what is intended in respect of the payment of transaction costs. On the face of the Explanatory Statement, the intention appears to be that Incitec and Industrial Chemicals as vendors will be paying stamp duty for the sale of assets. That is a departure from the normal practice and will place a substantial financial burden on shareholders in Incitec. Acehill is entitled to ascertain what is intended.

Section 247C provides that a person who inspects books under s 247A must not disclose information obtained during the inspection except to ASIC or the applicant. As an additional means of ensuring confidentiality, I have ordered that there be no disclosure of any document seen by any person other than Mr Edwards without leave of the court. In addition, as Mr Edwards will be joined by Mr Lonergan in the preparation of an expert report to Acehill, I have ordered that both Mr Edwards and Mr Lonergan do not disclose any supply arrangements which Mr Edwards believes are commercially sensitive.

The orders as to the times when books and documents are to be available for inspection clearly extend beyond ordinary business hours. Given the short time available for inspection, the substantial nature of the task, and the need to allow a reasonable time for Mr Edwards to report, I have ordered that Incitec make the documents available for inspection between the hours of 7.00am and 8.00pm up to and including Saturday, 19 October. The hours are long. They are the kind of hours which an executive will be required to work in times of urgent or pressing business. They are not unduly onerous.

I have not dealt in these reasons with every aspect of the order. The transcript of discussion with counsel records my reasons on some matters of detail and, to the extent necessary, I incorporate the transcript in these reasons.

For these reasons, I made the following orders:

1. The persons listed in Schedule 2 to this order be granted access on behalf of the plaintiff to inspect and take copies or extracts of the books or other documents of the defendant identified in Schedule 1 to this order save and except the books and documents referred to in paragraphs 1, 7 and 8, which shall be inspected only by Mr Craig Edwards and Mr J Karras.

2. That the defendant forthwith make the books and documents available for inspection by the persons listed in Schedule 2 at the premises of the defendant at Paringa Road, Gibson Island, Murarrie, Queensland or at such other place as is agreed.

3. That the defendant permit inspection between the hours of 7.00am and 8.00pm on each day until and including Saturday, 19 October 2002.

4. The persons listed in Schedule 2 shall not disclose to any other person the contents of any book or document inspected by them nor the purport or tenor of any such book or document save and except to Mr A J Myers QC and Mr Mark Hoffmann and it is further ordered that Mr A J Myers QC and Mr Hoffmann shall not disclose to any other person the contents of any book or document nor the purport or tenor thereof.

5. That Mr Craig Edwards and Mr Wayne Lonergan shall not in any written report disclose any supply arrangements which he believes are commercially sensitive.

6. The plaintiff shall not disclose to any person, other than the persons named in paragraph 4 of this order, the contents of any report of Mr Edwards in respect of the proposed restructuring of the defendant unless authorised to do so by order of this Court.

7. The defendant is at liberty to apply for orders requiring the persons listed in Schedule 2 to destroy copies of any books or documents made by them.

9. The defendant pay the plaintiff's costs of and incidental to this application as taxed or agreed.

J N Taylor Finance Pty Ltd (in liq) v BCF (Bond Corporation Finance) Ltd (1991) 55 SASR 428

Seventeenth Febtor Pty Ltd (in liq) v Veldara Pty Ltd (unreported, Supreme Court of Queensland, Atkinson J, 20 August 1999)

Re Seafood On Line.Com Ltd (in liq); Rabsnead Pty Ltd v Schmierer [2002] FCA 304

Winpar Holdings Ltd v National Consolidated Ltd [2001] FCA 1663

Re McKean (unreported, Federal Court of Australia, Burchett J, 16 April 1996)

Re Sabri (1995) 60 FCR 131

Emanuel Management Pty Ltd (in liq) v Fosters Brewing Group Ltd [1999] SASC 68; (1999) 73 SASR 303

Re Humes Ltd [1987] VicRp 43; (1987) 5 ACLC 64

Barrack Mines Limited v Grants Patch Mining Limited [1988] 1 Qd R 606

Intercapital Holdings Ltd v M.E.H. Ltd (1988) 6 ACLC 1068

Biala Pty Ltd v Mallina Holdings Ltd [1990] WAR 371

Knightswood Nominees Pty Ltd v Sherwin Pastoral Company Ltd (1989) 7 ACLC 536

Cescastle Pty Ltd v Renak Holdings Ltd (1991) 9 ACLC 1333

Lucy v Prescribing Biochemists Pty Ltd [2000] NSWSC 1137

Keenfern Pty Ltd v Thorlock International Ltd [2002] WASC 142

Caveat Pty Ltd v Baillie [2002] WASC 83

Re Claremont Petroleum NL (No 2) [1990] 2 Qd R 310

Re Augold NL [1987] 2 Qd R 297