Corporations Act - Scope of order allowing inpection of company books

Seventh Defendant : Fearis Salter Power Shervington

Corporate Affairs Commission (NSW) v Yuill [1991] HCA 28; (1991) 172 CLR 319

Davis v Sagar Pty Ltd, unreported; SCt of WA; Library No 980443; 10 August 1998

Farrow Mortgage Services Pty Ltd (In Liq) v Webb (1996) 39 NSWLR 601

Hall v Sherman [2001] NSWSC 810; (2001) 40 ACSR 40

Lucy v Prescribing Biochemists Pty Ltd [2002] NSWSC 1137

McCarthy v Dolpag Pty Ltd [2000] WASCA 106

Riley v Jubilee Gold Mines [2000] WASC 114

1 MASTER SANDERSON: On 17 April 2002 I published reasons indicating I was satisfied that the plaintiff should have leave under s 247A of the Corporations Act to inspect the books of the seventh defendant: see Caveat Pty Ltd v Baillie & Ors [2002] WASC 83. At the conclusion of those reasons I indicated I would give the parties the opportunity to make submissions as to the form of the order that I should make. At the time the reasons were handed down I encouraged the parties to attempt to agree a minute of orders. Unhappily, no agreement has been reached. In fact, after a period of just on five months, the parties renewed their battle and a number of further matters now fall for determination.

2 At the resumed hearing, counsel for the seventh defendant submitted that the failure of the plaintiff to advance matters and promptly resolve the issue of the form of order allowing for inspection was evidence that the plaintiff was not acting in good faith and would justify my refusing to make any order. On behalf of the plaintiff it was submitted, first, that reasonable attempts had been made to agree a form of order and there was no evidence of a lack of good faith, and secondly, that the matter had been determined and what the seventh defendant was now seeking to do was mount a collateral attack on the earlier decision.

3 I am not satisfied that there is any evidence that the plaintiff is not acting in good faith. The seventh defendant sought to rely on an affidavit of the first defendant, sworn 9 September 2002. That affidavit annexes correspondence passing between solicitors for the plaintiff and the seventh defendant subsequent to the handing down of the reasons. As I have indicated, I handed down reasons for decision on 17 April 2002. The plaintiff's solicitors did not write to the defendant's solicitors providing a draft minute of orders until 10 June 2002. While the plaintiff's solicitors might have been expected to have acted promptly, the mere fact that they delayed some eight weeks does not suggest a lack of good faith. Apart from anything else, it is for the plaintiff to show good faith and there is no evidence that the plaintiff was in any way responsible for the delay on the part of its solicitors. True it is that the solicitors are the plaintiff's agent, but in the circumstances of this case I can see no basis for equating a delay of some eight weeks by the solicitors in formulating orders with bad faith on the part of the plaintiff. In my view, what is relevant in this case are the matters which were fully argued in March of this year. I determined, taking into account all matters, I was satisfied the plaintiff was then acting in good faith. Nothing in the latest affidavit of the first defendant has led me to change my views on this question.

4 The minute of proposed orders prepared by the plaintiff's solicitors proposed that the seventh defendant would, within 21 days, make available to the plaintiff "the documents in the List of Documents annexed hereto marked 'A' ". Annexure "A" to the proposed orders contained a series of headings with classes of documents detailed under each heading. In all, 38 different classes of documents were referred to. When they received the proposed order the seventh defendants wrote back to the plaintiff's solicitors disputing the entitlement of the plaintiff to inspect some of the classes of documents listed in annexure "A". As I understand the correspondence, supplemented by submissions of counsel for the seventh defendant, it is said that some of the documents referred to do not relate to issues raised by the plaintiff in its application for orders under s 247A. To adopt the terminology employed when dealing with discovery applications, it might be said that the seventh defendant was prepared only to give inspection of documents related to the matters put in issue by the plaintiff in its application.

5 With respect, it seems to me that both the plaintiff and the seventh defendant are acting on a misunderstanding as to the Court's power under s 247A. As I indicated in my earlier decision, I can see no basis for limiting the scope of the inspection once an order is made under the provisions of s 247A(1)(a). If a plaintiff, having obtained an order, decides that, for one reason or another, it will limit its inspection to certain of the company's books, then it is quite entitled to do so. But once it has obtained an order it is, in my view, entitled to an order which reflects a general right to inspect. Equally, save for one exception, the company has no right to restrict in any way the plaintiff's access to its books. Once the order is made the plaintiff is free to trawl through the company's books without restriction, save as provided in s 247B. Such protection as is afforded to the company is to be found in s 247C.

6 The limitation which may arise has to do with privilege. It may be that a company in the course of defending an application under s 247A takes advice from its solicitors. Generally speaking, litigation privilege would attach to such advice and any privileged documents would not be available for inspection by the plaintiff. Whether or not such litigation privilege can prevail in the face of the clear wording of s 247A is not a matter which falls for determination on this application. Counsel for the plaintiff indicated during the course of the hearing that he was content for an order to be made in a form which did not require the seventh defendant to produce for inspection any documents over which privilege was claimed.

7 A further question arose in relation to documents over which there was a claim for joint or common interest privilege. This was a matter raised by defendants other than the seventh defendant. These parties were concerned that the plaintiff should not have the right to inspect such documents. It was pointed out by counsel for these defendants that where joint privilege exists, it must be waived by all parties before the privilege is lost: see Global Funds Management (NSW) Ltd v Rooney (1994) 36 NSWLR 122 at 134; Newcrest Mining (WA) Pty Ltd v Commonwealth (1993) 40 CLR 507. Counsel for the plaintiff did not challenge the propositions advanced on behalf of these defendants. However, the position is covered by excluding from the documents available for inspection those over which privilege is claimed by any of the defendants. Such an exclusion must necessarily include those documents over which the first through to sixth defendants claim either common or joint privilege with the seventh defendant. No special order is needed to protect the position of these defendants. Any dispute can be resolved under the liberty to apply provision.

8 At the resumed hearing, counsel for the first, second, third and sixth defendants and counsel for the fourth and fifth defendants complained that they had not been consulted about the form of the orders. Both raised the question of privilege and both sought the right to file submissions in relation to the form of the orders. I gave leave to each counsel to file submissions and that was duly done. Counsel for the fourth and fifth defendants produced a proposed minute which set up a regime in relation to privileged documents and documents over which it was said there was an obligation of confidentiality. In relation to the question of privilege I am not satisfied that the regime proposed by counsel is necessary. As I have said, the plaintiffs have indicated they will not seek to inspect documents over which privilege is claimed. There is no reason why the defendants cannot decide upon what documents are privileged and hold these back from inspection by the plaintiff. Any dispute can be referred to the Court for determination.

9 The documents which are said to be confidential pose something more of a problem. The confidential nature of documents is not generally speaking a reason for declining to order discovery and inspection of those documents: see generally Science Research Counsel v Nasse [1979] UKHL 9; [1980] AC 1028 at 1065. There is nothing in s 247A itself which would restrict the right of the plaintiff to inspect documents, even if they were confidential. Furthermore, there has been no evidence led by the defendants to suggest that there are in existence any documents which are subject to a confidentiality obligation. In their letter to the plaintiff's solicitors of 25 June 2002 (first defendant's affidavit of 16 September 2002, page 19) the seventh defendant's solicitors refer to certain documents which are "the subject of a confidentiality obligation by virtue of the procedural rules of the Corporation and Securities Panel". It is said that these documents will not be made available for inspection.

10 It may be that the defendants in this case are labouring under a misapprehension. At common law the rule is that shareholders of a company are not entitled to sight the company's books. That is a privilege reserved to the directors and authorised managers. Section 247A allows the Court, when certain conditions are satisfied, to make orders allowing such inspection. Once the order is made, the successful plaintiff is, to all intents and purposes, placed in the same position as the company's directors. That, I think, is a necessary result of the unrestricted access to the books anticipated by s 247A.

11 In reaching this conclusion I appreciate that it is at odds with the approach that has been adopted in the past. For instance, in Re Claremont Petroleum NL (No 2) (1990) 8 ACLC 548, McPherson J was dealing with s 265B of the Companies (Qld) Code, a provision which was a forerunner to, but significantly different from, the present s 247A. His Honour said (at 552):

"... I have acted on the principle that sec 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 sec 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 sec 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 decisions 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 the assets or the consideration given in return for them."

12 Undoubtedly such restrictions on access were consistent with the Companies Code provisions, but to my mind there is no basis for any restriction under s 247A. Once the matter is approached in this way it can be seen that issues of confidentiality cannot restrict a plaintiff who has made a successful application to inspect the books.

13 There are four further issues between the parties which require consideration. The first relates to documents which the seventh defendant says are not in its control but in the control of the subsidiary. The seventh defendant's position on this issue was set out in par E of their letter to the plaintiff's solicitors of 25 June 2002 (see page 19 of the first defendant's affidavit of 16 September 2002):

"We are instructed that certain of the documents sought by your client are currently in the possession and control of our client's South African subsidiary, Intuthuko Mining (Proprietary) Limited ('Intuthuko'). We are also instructed that our client has no right of access to these documents and, indeed, cannot compel Intuthuko to release documents in its possession."

14 What s 247A envisages is inspection by a plaintiff of "the books" of the companies. The section does not anticipate the company taking any positive steps to obtain documents to which it might be entitled. In this respect there is a clear distinction to be drawn between a right to inspect under s 247A and an obligation on a party giving discovery. The difference can be illustrated in this way. If a company wrote a letter to a third party and inadvertently or otherwise failed to keep a copy of the correspondence, then the letter would not be available for inspection by a plaintiff who obtained an order under s 247A. This would be so even where the letter was held by a subsidiary under the control of the company. On the other hand, if the company was obliged to give discovery it would be required to state when the letter was last in its possession and, as it may now be within its power, if not necessarily its custody, it would have to be made available for inspection. This view is consistent with the approach that was adopted by the courts to s 265B of the Companies Code: see in particular Bride & Anor v Commissioner for Corporate Affairs (1989) 7 ACLC 1202 per Ipp J at 1204 - 1205.

15 The second question is where the books of the plaintiff should be made available for inspection. The first defendant says in his affidavit of 16 September 2002 that some of the books are held in Western Australia and some are held in South Africa. The minute of proposed orders prepared by the plaintiff does not specify where the seventh defendant is to make the books available for inspection. By implication, if not directly, the seventh defendant says that it is prepared to make all of the books available for inspection in Western Australia but, if that is to be done, costs in the region of $11,500 will be incurred. These, the seventh defendant says, should be paid by the plaintiff. In my view there is no warrant in s 247B for ordering that the books be made available for inspection in Western Australia. Given that the seventh defendant's sphere of operations includes South Africa, it is not unreasonable that some of their books should be located overseas. As I have said, s 247A is in its terms, passive - that is to say, a company is required to give or facilitate inspection. But it is not required to take any positive steps. Of course, it is not entitled to act so as to frustrate any orders of the Court. In this case there is no suggestion that the seventh defendant is being obstructive. In my view, apart from telling the plaintiff where and when the books can be inspected, the seventh defendant need do no more. It certainly need not, if it does not wish to do so, gather all of the books in one place convenient to the plaintiff.

16 Thirdly, there is an issue as to the costs of undertaking the inspection. The seventh defendant says that the plaintiff should pay its costs associated with giving inspection. There is no basis within s 247A for making such an order. That stands in contrast to O 26A r 7 of the Rules of the Supreme Court which specifically anticipates an applicant for discovery from a non-party giving security for costs and expenses of a person who is required to provide discovery. Furthermore, if the company is required to do no more than provide its books for inspection, it is difficult to see how it is likely to incur costs. Be that as it may, there is nothing in the section which deals with the issue of costs and in my view there is no basis upon which such an order can be made.

17 Finally, there is the question of who is to undertake the inspection. Section 247A(1)(a) anticipates the applicant being authorised to inspect the books. In this case, of course, the applicant is a corporation. An order made in favour of the plaintiff then would authorise a director of the plaintiff to inspect the books. The present proposed orders of the plaintiff do not anticipate any other person being authorised to inspect the books under the provisions of s 247A(1)(b). It may be that the plaintiff would care to give this matter further consideration.

18 On the question of costs, I am satisfied that the seventh defendant ought pay the plaintiff's costs of the application. When the matter was argued I had in mind that the costs of the application might be reserved until the plaintiff determined whether it would apply for leave to bring proceedings under s 237. On further reflection, I am satisfied that it would be proper to deal with the question of costs on this application now - once orders are made the application under s 247A will be at an end. In essence the plaintiff has been successful. While what it seeks is an indulgence of the Court and to exercise a right not available at common law, the matter has been fully argued and fiercely contested. The plaintiff has been successful. On that basis it should be entitled to its costs.

19 In summary then, I would be prepared to make an order which allows the plaintiff to inspect the books of the seventh defendant other than books over which privilege is claimed. I would not be prepared to order that the seventh defendant obtain copies of books not presently in its possession. I would not be prepared to make any orders restricting the plaintiff's access to the seventh defendant's books based on obligations of confidentiality as between the seventh defendant and third parties. I would not be prepared to order that the seventh defendant provide inspection at one central location - the plaintiff must inspect the seventh defendant's books at their usual location. I would not be prepared to make any order that the plaintiff pay the seventh defendant's costs of providing inspection, nor would I be prepared to order that security for those costs be provided. I would be prepared to make an order specifying that Robert John Russell, as a director of the plaintiff, should be entitled to inspect the books. I would also be prepared to make a further order that one other person be authorised to inspect the books with Russell, provided I was satisfied the person was appropriately qualified: see s 247A(4)(b). There should be liberty to all parties to apply.

20 The plaintiff should bring in a minute of orders in conformity with these reasons. I will allow the opportunity for argument as to the precise terms of the order. This step should be taken promptly.