AG Care Aviation Pty Ltd v Outback Air Pty Ltd [1999] VSC 94

8. The background facts of the matter are that Lindy Maureen Langshaw is a director and secretary of the applicant, AG Care Aviation Pty Ltd. Mrs Langshaw is a 50% shareholder in the applicant company. In about October 1991 Mrs Langshaw and her late husband entered into discussions with one Kevin Pearce in relation to a tourist facility in Tasmania. Mr Pearce is and was a director and shareholder of Outback Air. As a result of the discussions Mrs Langshaw and her late husband through the vehicle of the applicant company purchased a 20% interest in Outback Air for the sum of $65,000. As part of the transaction the applicant company was allocated a 20% shareholding in Outback Air.

11. It transpired that in 1993 Mr Pearce on behalf of Outback Air commissioned the construction of a steam boat as part of a tourist facility in Tasmania at a cost of approximately $232,700. Mrs Langshaw believes that her late husband or the applicant company contributed $22,000 by way of a loan to Outback Air to part finance the construction of the vessel.

14. Relations soured between the Langshaws and Mr Pearce and, subsequently, there was an unsuccessful attempt by the Langshaws to sell their shares in Outback Air to Mr Pearce. The parties, it seems, ceased to communicate with each other and later, in 1996, Mr Langshaw died as a result of an aircraft accident. In July 1997 Mrs Langshaw moved to Victoria and discovered that the steamboat built for Outback Air was operating in Melbourne. She ascertained, also, that five Cessna aircraft were registered in the name of Outback Air.

17. In an affidavit sworn on 10 December 1998 Mrs Langshaw deposed that since the death of her husband in 1996 neither she nor the applicant company had been provided with any information whatsoever concerning Outback Air. As a result, her solicitors wrote to Outback Air seeking access to the books and records but such access had not been made available. Subsequently, these proceedings were instituted by summons issued on 11 December 1998 seeking orders for inspection of documents pursuant to s.247A of the Corporations Law.

20. Orders were made ex parte before Hansen, J on 18 December 1998, as follows:

"1. The Applicant's accountant, Donald Keith Alkemade (of Alkemade & Associates of 321A Koonang Road, Carnegie, Victoria), Lindy Maureen Langshaw and Andrew James Shay be authorised to inspect and make copies of the following books of the Respondent in respect of the period from June 1994 to date:

(b) all documents recording or evidencing any charge or encumbrance given by the Respondent over its assets and/or undertakings; and

(c) all documents recording or evidencing any loan account of or in respect of the Respondent whether as debtor or creditor.

2. The said inspection take place at the Respondent's registered office between 9.00 a.m. and 5.00 p.m. on 20 January 1999 or on such other date as the parties may agree or as the Court may by further order fix.

4. The Respondent pay the Applicant's costs of and incidental to this application."

30. The matter proceeded ex parte before Hansen, J due to difficulties in relation to service of documents.

33. Subsequently, the date fixed by Hansen, J for inspection of documents came and went without inspection occurring. In an affidavit sworn on 4 February 1999 Liza Frances Pearce on behalf of Outback Air deposed that for various reasons the relevant notice of motion and affidavit in support and orders made by Hansen, J on 18 December 1998 did not come to the attention of the directors of Outback Air in sufficient time to comply with the requirements of the orders of Hansen, J. In addition, Mrs Pearce in her affidavit deposed to other proceedings between Outback Air and the Langshaws issued in 1996. She deposed that the other matter had settled but that the proceeding had not been discontinued and was lying dormant. In essence, it was alleged in the other proceeding that the Langshaws attempted to set up a rival company to the tourist operation maintained by Outback Air in Tasmania. Mrs Pearce deposed, further, as to the circumstances of the use and value of the boat and the aircraft alleged to have been owned by Outback Air. She rejected any suggestion that the Langshaw interest had been oppressed by the Pearce interests in Outback Air. She deposed, further, a belief that the purpose of Mrs Langshaw in seeking access to the documents pursuant to the orders made by Hansen, J on 18 December 1998 was not a bona fide purpose. No reason for such allegation was forthcoming. In the affidavit Mrs Pearce deposed that basic financial documents had been provided to Mrs Langshaw. Finally, she deposed that in relation to information surrounding certain loan accounts of Mr and Mrs Pearce with Outback Air, they were reluctant to disclose the documents sought as the documents may relate to terms of settlement in the other proceeding. The prejudice or difficulties with disclosure of loan account documents was not explained any further.

36. On 5 February 1999 the matter came back before the court and was heard by Byrne, J pursuant to liberty to apply granted earlier. Outback Air essentially sought to set aside the orders of Hansen, J. The transcript of the hearing on 5 February 1999 reveals that the position of Outback Air was fully ventilated before Byrne, J and the orders of Hansen, J were not set aside. On the contrary, Byrne, J ordered that the orders of Hansen, J stand. Orders were eventually made on 5 February 1999 as follows:

"1. The date for inspection referred to in paragraph 2 of the order of Mr. Justice Hansen of 18 December 1998 of such of the documents as are then in the possession of the Respondent is extended to one or more of 18 and 19 February 1999. With respect to the inspection of the annual accounts for the year ending 1998 the date for inspection is extended to 15 March 1999. In other respects the order will stand.

2. The use which the Applicant or the inspecting persons may make of any information obtained from such inspection or copying be limited to the seeking of advice relating to and enforcement of the rights of the Applicant as shareholder in the Respondent.

43. Notwithstanding the orders made on 5 February 1999 the applicant company comes before the court complaining of inadequate compliance with the court orders enabling inspection.

46. On 4 March 1999 the solicitors for the applicant wrote to the solicitors for the respondent complaining as to the adequacy of documents made available for inspection. Enclosed with the solicitors' letter was a letter from the accountant, Alkemade & Associates who act for the applicant company. In the accountant's letter a full description of documents required in order to complete the examination of the records of Outback Air was described. Further, the auditor's letter expressed the belief that the examination of the accounts should be extended to "a full company audit from 1992 to 1999".

49. The position of the applicant company is that there has been insufficient compliance with the orders made by Hansen, J on 18 December 1998. Mr Robson, QC appeared on behalf of the respondent company, Outback Air. In essence, the position put on behalf of the respondent was that all of the documents required to be made available for inspection pursuant to the orders made by Hansen, J on 18 December 1998 had been made available. An affidavit was sworn by Donald Keith Alkemade on 19 March 1999 the accountant engaged by the applicant company to conduct the inspection of the respondent's documents. He deposed that he had been provided with the opportunity to inspect profit and loss statements and balance sheets for the financial years ending 30 June 1994 to 30 June 1997; trading accounts and depreciation schedules for the financial years ending 30 June 1995 to 30 June 1997; general ledger reports related to loan accounts for the financial years ending 30 June 1995 to 30 June 1997; and certificates of entry of charge and copies of forms 309, 311 and 312 issued by the Australian Securities and Investment Commission. In particular, Mr Alkemade deposed that in effect the general ledgers made available to him at inspection including matters relating to loan accounts had been "edited". He was not provided with documents being the appropriation accounts and trial balance records for each financial period ended 30 June; the company register and minutes of director meetings and shareholder meetings; all general ledgers; all general journals; all cash books; all payroll records; all depreciation schedules and asset register; and all source documents in connection with the loan accounts. Furthermore, Mr Alkemade deposed that during his inspection he observed entries relating to the disposition of an aircraft for the sum of $105,000 and, also, a loan for a sum of approximately $116,000 between Outback Air and an entity merely referred to in the balance sheet as "controlled entity".

52. Mr Robson argued that the documents now sought by the applicant company were above and beyond the documents ordered to be made available for inspection by the orders of Hansen, J of 18 December 1998. He submitted that the documents now sought constituted part of the books of account and not the annual account records which were broadly encompassed in the categories of documents ordered by Hansen, J. Furthermore, Mr Robson submitted that the purpose of the applicant company had shifted in that it originally sought the documents for the purposes of satisfying itself as to whether there was potentially an oppression claim. He submitted that now the applicant company wanted to carry out a full audit and which it was not permitted to do. Mr Robson submitted that compliance with the request for the expanded inspection would cause inconvenience and cost to the respondent company but ultimately his position was that "enough is enough". He submitted that the applicant company was in a position to form a view as to whether it had sufficient concerns to proceed with any oppression proceeding.

55. The documents described in the categories of documents ordered by Hansen, J on 18 December 1998 are broad. The documents refer to the annual accounts; all documents concerned with "any charge or encumbrance" over the assets and/or undertakings of Outback Air; all documents "recording or evidencing any loan account of or in respect of the respondent" (emphasis added).

58. Section 247A(1) of the Corporations Law empowers the court to authorise inspection of "books of the company". Section 247A(1) provides:

"247A(1) On application by a member of a company or registered managed investment scheme, the Court may make an order:

(a) authorising the applicant to inspect books of

the company or scheme; or

(b) authorising another person (whether a member or

not) to inspect books of the company or scheme on

the applicant's behalf.

The Court may only make the order if it is satisfied that the applicant is acting in good faith and that the inspection is to be made for a proper purpose.

247A(2) A person authorised to inspect books may make copies of

the books unless the Court orders otherwise."

62. Section 9 of the Law defines "books" as including:

"(a) A register; (b) Any other record of information; (c) Financial reports or financial records, however compiled,

recorded or stored; and (d) A document".

66. The definition is broad. The books of the respondent company include any other record of information, financial reports or financial records.

69. Section 247A of the Corporations Law came into operation on 1 July 1998 as part of the Company Law Review Act 1998. On the basis of s.247A the applicant company is entitled to inspect the financial reports or financial records of Outback Air. Clearly, Outback Air has provided only part of those documents whereas the order made by Hansen, J was for all documents being financial reports or financial records of the company as specified. The orders made by Hansen, J on 18 December 1998 contemplated broad categories of documents. The court did not consider it necessary on that occasion to specify each and every category of document in such minutiae as underlies the submissions put forward on behalf of the respondent on this occasion. I am satisfied that the respondent company in purporting to comply with the orders made by Hansen, J has been non-responsive and unco-operative. Furthermore, I am satisfied that essentially the challenge submitted in argument to me was to some extent ventilated on the occasion of the hearing before Byrne, J on 5 February 1999. The application before me constituted a second attempt to attack the matter in a different way. Accordingly, I will make orders that provide that:

On or before 4.00 p.m. on 9 April 1999 the applicant's accountant, Donald Keith Alkemade of Alkemade & Associates, Wendy Maureen Langshaw and Andrew James Shay be authorised to inspect and make copies of the following books of the respondent:

(a) The appropriation accounts and trial balance records for each financial period ended 30 June or part thereof;

(b) The company register and minutes of director meetings and shareholder meetings;

(e) All cash books including cash receipts and cash payments;

(f) All bank statements and respondent's reconciliation statement of such bank statements;

(g) All payroll records and group certificates and respondent's reconciliation statements of such payroll records;

(h) All depreciation schedules and asset registers;

(i) Source documents in connection with the loan accounts of the respondent including but limited to all loan agreements, term deposit statements, asset sale agreements, management agreements and contract insofar as they relate to the recording or evidencing of any loan account of or in respect of the respondent whether as debtor or creditor.

82. I will hear the parties as to the form of order and the issue of costs.