Clarence City Council v Commonwealth of Australia

Application under s 198F of the Corporations Act

1. First, Dr Iqbal seeks an order under s 198F of the Corporations Act that MTD make available for inspection by him and his solicitor, within seven days, the books and records identified in the letter dated 6 April 2020 from his solicitors to MTD. I have referred to the documents sought by that letter above. All or substantially all of those documents are directed to advancing the allegations made by Dr Iqbal in these proceedings, so that it might be thought that there is little utility in seeking their production after these proceedings had already been heard and determined by this judgment. By their Grounds of Opposition dated 9 February 2021, the Active Defendants resist that relief on the basis that Dr Iqbal did not pay the initial capital required to buy shares in MTD. I will return to that issue below.
2. I reviewed the scope of s 198F of the Corporations Act in Re Motasea Pty Ltd [2014] NSWSC 69 at [50]-[53] as follows: "Section 198F of the Corporations Act provides that a director of a company may inspect the books of that company (other than its financial records) at all reasonable times 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. That section creates a statutory right of inspection, but the Court's power to order such inspection arises under s 1303 of the Corporations Act which provides that: If a person in contravention of this Act refuses to permit inspection of any book or to supply a copy of any book, the Court may by order compel an immediate inspection of the book or order the copy to be supplied. It is essential to the exercise of a director's right to inspect books under these sections that the director be, actually or prospectively, a party to litigation, and the director must establish the factual background to the application by more than unsubstantiated assertions: Stewart v Normandy NFM Ltd [2000] SASC 344; (2000) 18 ACLC 814 at [10]; Boulos v Carter; Re TARBS World TV Australia Pty Ltd [2005] NSWSC 891; (2005) 220 ALR 572; (2005) 54 ACSR 827 at [28], [31]; Re Jervois Mining Ltd; Campbell v Jervois Mining Ltd [2009] FCA 316 at [48]. This section does not support a director's inspection of books of the company in his or her capacity as a shareholder, for example in order to bring oppression proceedings: Hardcastle v Advanced Mining Technologies Pty Ltd [2001] FCA 1846 at [25]; Dick v Alan Powell Holdings Pty Ltd [2009] QSC 184 at [114]-[115]. … … in Stewart above, Burley J observed at [15]-[16] that the fact that an investigation of the company's books was sought to determine whether any wrongful acts had occurred was a matter which at which required caution in determining whether or not the plaintiff proposed in good faith to bring the relevant proceedings. In Boulos v Carter above at [28], Barrett J observed that an "essential element" of the right of inspection under s 198F is that the "claimant director be, actually or in prospect, a party to litigation". His Honour also (at [31]) followed Stewart above in observing that a director relying on s 198F must both "establish the factual background the application" and may not do so by "unsubstantiated assertions", and that the Court would not grant an order under that section unless it found "that the director in question proposes to bring the particular proceeding and that the proposal is advanced in good faith" and treated the fact that the applicant did not give evidence of any proposal to bring the proceedings or identifying the purpose of access as sufficient reason to dismiss the application. … I accept, that the Court would not make an order under s 198F, read together with s 1303 of the Corporations Act, where the proposed legal proceedings are not identified; the books required or their relevance to those proposed legal proceedings are also not identified; and the Court is therefore not in a position to determine whether [the applicant] is acting in good faith in respect of the request for access. … I should add that … the Court does not have power under ss 198F or 1303 of the Corporations Act to authorise inspection of a company's books by another person on behalf of a director, and the order sought by [the applicant] that the books be made available to an accountant and solicitor authorised by her also could not been granted for that reason: Oswal v Burrup Holdings Ltd [2011] FCA 609; (2011) 84 ACSR 65 at [24]-[25]."
3. In Sharpe v Grobbel [2017] NSWSC 1065 at [21], Brereton J in turn observed that: "Moreover, directors are entitled, at common law, to access the books and records of the company as a necessary incident of the office of director, in order that they may properly perform their duties. The statutory right of access under s 198F of the Corporations Act, now permits access for the purpose of legal proceedings to which a director or former director is or may become a party, notwithstanding that the director's purpose may be a private one."
4. In submissions, Mr Johnson refers to the evidence and submits that this order should be made. Mr White referred to my observations as to the scope of the section in Re Motasea above. Mr White acknowledges that Dr Iqbal was a director of MTB for the period from 6 July 2017 to 11 December 2017, and that he has standing to seek an order under 198F of the Act on that basis, but submits that the Originating Process does not disclose any existing or prospective litigation to which he is or may be a party. Mr White also points out that, as I observed in Motasea above at [53], the Court does not have power to authorise inspection of a company's books by another person on behalf of a director.
5. I am not persuaded that I should make this order. To the extent that access to the relevant books is sought by Dr Iqbal for the purposes of these proceedings, there is no utility in ordering it after these proceedings have been determined. There is no evidence that Dr Iqbal is party to other proceedings or has reason to believe that other proceedings will be brought against him or proposes to bring such proceedings, other than these proceedings.

The status of the GSA

1. Second, Dr Iqbal seeks a declaration that the GSA "is of no force or effect at law or in equity". In their Grounds of Opposition, the Active Defendants resist that declaration on the ground that Dr Iqbal executed the GSA. The question whether the GSA or the GPA had effect is relevant both to the content of Dr Iqbal's obligation to pay the initial capital in consideration for the shares to be issued to him, and to a wider dispute between the parties as to the remedies available to MTD's other shareholders if Dr Iqbal did not do so.
2. Clause 6 of the GPA (which Dr Iqbal contends and which I accept bound the parties) deals with "initial capital" and refers to an initial capital of the partnership of $100,000, but then contemplates that each of Mr Mallick, Dr Iqbal and Dr Ahmed will contribute $100,000, and is confusing as to the date of that contribution, stating that it will be "on or before 17/11/2017 before 15/12/2016". Had the GSA taken effect between the parties, contrary to the findings that I reach below, then the corresponding clause in cl 6 of the GSA was somewhat clearer and referred to an initial capital of the partnership of $300,000, of which each of Mr Mallick, Dr Iqbal and Dr Ahmed shall contribute $100,000, and clarified the date of the contribution as being on or before 15 December 2017 or any agreed date by other shareholders. The GSA also included a provision that the shares of any shareholder who did not pay the full specified amount of $100,000 before the relevant date "will be automatically returned to other shareholders in the company" and seeks to oust the Court's jurisdiction to entertain a challenge by that shareholder. It is not necessary to determine whether that clause would be effective, if the GSA took effect, given the finding that I reach below.
3. Mr Johnson recognises that the Active Defendants rely on the GSA in support of Dr Iqbal's removal as a member of MTD and submits that the GSA is a "fabrication" and that the effective agreement was the GPA. I am conscious of the serious character of a finding that the GSA is a fabrication, but I am satisfied that I must reach that finding. It seems to me plain that the signed last page of the GPA, referring in its header to Medicus College and Medical Training and Development Pty Ltd and in the footer to a registered office address at Chatswood and a campus address at Wagga Wagga, has been added to the several pages of the GSA that were initialled by Mr Mallick and Dr Ahmed but not by Dr Iqbal which do not have that header and refer to a different registered office address and a different phone number and do not record the campus address. It is not necessary to find, and I do not find, that Dr Ahmed was party to the fabrication of the GSA and it is sufficient for present purposes that I find that that document is not authentic and that Dr Iqbal is not bound by it.
4. While I have found that the GSA is a fabrication, although not that Dr Ahmed was necessarily party to that fabrication, I do not consider it necessary to make the declaration sought, where my findings will bind the parties as to the relevant issues. I will return below to wider issues that still exist between the parties, on the basis that the GPA rather than the GSA governs the relationship between them.

Whether Dr Iqbal is a shareholder in MTD and whether orders can be made under s 175 and 1303 of the Corporations Act

1. Third, Dr Iqbal seeks a declaration that "at all relevant times [he] remained a shareholder in [MTD]". Fourth, Dr Iqbal seeks an order under s 175 of the Corporations Act to rectify MTD's register of members to reflect his shareholding as a shareholder in MTD. By their Grounds of Opposition, the Active Defendants resist the claim for a declaration that Dr Iqbal remained a shareholder in MTD and also resist the order for rectification of MTD's share register on the basis that Dr Iqbal did not pay the initial capital required to buy the shares in MTD.
2. Mr White contends that the GPA (which Dr Iqbal contends and which I accept bound the parties) required that the initial capital be paid on or before 17 November 2017, which provided 12 months for each party to pay that capital. Mr White also submits that it was an essential term of the parties' agreement, including under the GPA, that the "partners" pay their respective contribution of the initial capital of MTD within the one year period stated in cl 6 of the relevant agreement or a reasonable period of time thereafter. It is not necessary to determine when the payment of the "initial capital" was due under the GPA where Dr Iqbal does not seek to establish that he paid the initial capital in the several years since that agreement was formed, and, to the extent that there is uncertainty when that payment was due, a reasonable time for that payment has long since passed. The Active Defendants led Dr Ahmed's evidence to establish that Dr Iqbal did not pay the initial capital due under the GPA or the GSA and Dr Iqbal did not lead any evidence that would rebut that evidence. I find that Dr Iqbal did not in fact pay that initial capital within either of the times specified within the GPA or within a reasonable time or at all. Mr White also points to the fact that Dr Iqbal leads no evidence that and does not contend that he made any non-financial contribution to MTD, and submits that Dr Iqbal has repudiated the GPA or the GSA by reason of his failure to pay that initial capital. I will return to this matter below in dealing with whether the Court should permit a further application for alternative relief to that sought by Dr Iqbal in the proceedings.
3. Mr Johnson in turn refers to Dr Iqbal's purported "removal" as a shareholder of MTD effective on 24 January 2019, as recorded in a notification given to ASIC on that date (Iqbal Annexure C). The question whether Dr Iqbal was "removed" or remains as a shareholder in MTD depends upon the means by which shares in a proprietary company can be transferred. Whether a person is a member of a company is determined under s 231 of the Corporations Act, which provides that a person may be a member, relevantly, if they agree to become a member of the company after its registration and their name is recorded on the register of members. Section 1071B of the Corporations Act in turn provides that, subject to two exceptions that are not presently relevant, a company may only register a transfer of securities if a proper instrument of transfer has been delivered to the company. MTD's constitution (Ex P2) in turn deals with the steps necessary to transfer its shares and provides, in cll 109-110, that: "109 A person may transfer shares to another person by a document in the usual or common form or in some other form approved by the directors, signed by both the transferor and the transferee. The transferor remains holder of the shares until the transfer is registered. 110 For a transfer to be registered, the following documents must be lodged at the company's registered office: the transfer itself, duly stamped; the share certificate (if there is one) or evidence satisfactory to the directors of its loss or destruction; any other information the directors require to establish the transferor's right to transfer the beneficial ownership in the shares. No fee is payable in respect of a transfer." Clause 111 permits the directors to refuse to register a transfer for any reason they think fit and cll 112ff set out pre-emptive provisions relating to a transfer.
4. It seems to me that no effective step was taken to cause Dr Iqbal to cease to be a shareholder in MTD, where I have found that the GSA did not take effect; the GPA did not provide a mechanism to forfeit Dr Iqbal's shares; Dr Ahmed and MTD did not seek to invoke the mechanism for forfeiture of shares in MTD's constitution; and there is no evidence that any transfer of Dr Iqbal's shares to Dr Ahmed was recorded in MTD's share register, if MTD in fact maintains a share register. Neither the requirements of s 1071B of the Act or those set by cll 109ff of MTD's constitution were complied with in respect of any transfer of Dr Iqbal's shares to Dr Ahmed. There is no evidence that, and Dr Ahmed did not suggest that, a transfer of Dr Iqbal's shares to him was ever executed by Dr Iqbal or made available to MTD. The fact that no such transfer is shown to have been executed or provided to MTD in respect of Dr Iqbal's shares has the consequence that he continues to have the legal title to them.
5. That finding binds the parties. However, I do not consider that the declaration sought by Dr Iqbal should be made where it would be merely anterior to other substantive relief and I would only order that other relief on terms, for the reasons noted below. The Court's power to order declaratory relief is directed by the interests of justice, and the Court may have regard to "whether the declaration would serve any useful purpose and whether there are any special reasons why or why not the court should grant the declaration" although that proposition does not limit the matters to which the Court may have regard: Financial Services Authority v Rourke [2001] EWHC 704 (Ch); Clarence City Council v Commonwealth of Australia (2020) 382 ALR 273; [2020] FCAFC 34 at [189]; Rohrt, in the matter of Rose Guerin and Partners Pty Ltd (in liq) [2021] FCA 483 at [172]ff. It seems to me that Dr Iqbal's failure to pay the initial capital required under the GPA and the fact that substantive relief would only be granted on terms, are special reasons which outweigh any reason to order declaratory relief without Dr Iqbal making that payment.
6. Mr Johnson also submits that orders should be made under ss 175 and 1303 of the Corporations Act to rectify MTD's register of members to show Dr Iqbal as a member. Mr White responds by reference to my observations in Re Motasea Pty Ltd above at [47] as follows: "Section 175 of the Corporations Act provides, relevantly, that a person aggrieved may apply to the court to have a register kept by a company corrected and, if the court orders that company to correct the register, it may also order that company to compensate a party to the application for loss or damage suffered and to lodge notice of the correction with ASIC. That section replaced s 212 of the Corporations Law and it confers a continuing power to correct the register where, for example, an entry is omitted from it: Bon McArthur Transport Pty Ltd (in liq) (recs & mgrs apptd) v Lange [2007] NSWSC 1371. That section operates in parallel to, and arguably assumes the existence of, the court's equitable jurisdiction to rectify a register: Grant v John Grant & Sons Pty Ltd (1950) 82 CLR 1 at 51; Peninsula Gold Pty Ltd v Sunbeam Victa Holdings Ltd (1996) 20 ACSR 553 at 558-559. The authorities recognise that the applicant for rectification must show a personal equity that the court will protect; prima facie, such an equity is shown if a person's name is wrongly omitted from the register; however, the court has a broad discretion whether to order the correction of the register of members and may decline to order rectification if there is some reason why that should not occur: Grant above at 51. I summarised the relevant principles in Re Mogul Stud Pty Ltd [2012] NSWSC 1639 at [7] as follows: That section does not itself confer a power to create a register, but assumes that the Court already has such a power at general law: Peninsula Gold Pty Ltd v Sunbeam Victa Holdings Ltd (1966) 20 ACSR 553; (1996) 14 ACLC 1089 at 1094. In the well known decision of Grant v John Grant & Sons Pty Ltd (1950) 82 CLR 1 at 51, Fullagar J pointed to the discretionary character of the power to order rectification of the register and to the fact that in equity warranty rectification would prima facie be established if a person's name was wrongly included or omitted from the register; the same principle is plainly applicable where, rather than the person's name being omitted, the number of shares attributed to that person is incorrectly recorded, so as to impose a disadvantage on that person or on other shareholders. The principles of rectification at general law are relevant, and those draw attention to where the position as recorded in a document reflects the common subjective intention of the parties: Franklins Pty Ltd v Metcash Trading Ltd [2009] NSWCA 407; (2009) 76 NSWLR 603 at [444]ff."
7. The first difficulty with the relief sought by Dr Iqbal is that, as Mr White points out, he has not established a personal equity to support the relief sought, at least unless he is prepared to pay the initial consideration that he was required to pay under the GPA as consideration for the issue of the shares in MTD to him. Conversely, the Court could properly exercise its broad discretion to decline relief unless he does so.
8. The second difficulty with the relief sought by Dr Iqbal is there is, in any event, no evidence that MTD maintains a share register or that his name has in fact wrongly been omitted from any such register. An order cannot be made under ss 175 and 1303 of the Act, as Dr Iqbal seeks, for the reasons that I noted a similar order could not be made in similar circumstances in Re Centura Global Holdings Pty Ltd (2016) 111 ACSR 185; [2016] NSWSC 62 at [54]. It is not clear whether a register of members of MTD exists, notwithstanding the statutory requirement that it be maintained; or, if it exists, who holds it so as to give effect to an order for rectification of it; or, if it exists, what it records, which may or may not be incorrect. In particular, there is no evidence that such a register, if it exists, does not presently record Dr Iqbal as a member and, if it did, there would be no reason to rectify it and no basis for an order under ss 175 or 1303 of the Act. If it had been established that MTD maintained a share register, and that it did not already record Dr Iqbal as a shareholder, I would have accepted that Dr Iqbal had a personal equity arising from the wrongful omission of his name from the share register, but I would have only ordered the correction of the register of members on terms that he do equity by subscribing the amount of the initial capital of $100,000 to MTD as required under the GPA, at the same time as any register was corrected.
9. In oral submissions, Mr Johnson raised the possibility that the Court may grant relief that was not sought in the Originating Process, that MTD bring a share register into existence and enter Dr Iqbal's name in it as the holder of the relevant shares. I accept that the Court has jurisdiction to make such an order, under s 1322 of the Corporations Act, and Brereton J made such an order in Re Hillsea Pty Ltd [2017] NSWSC 1870. I recognise that the Court also has power to make orders under s 1322 of the Act in respect of the shareholding records held by ASIC, although that would likely require that ASIC be joined as a defendant in the proceedings: Re Centura Global Holdings Pty Ltd above at [55]-[57]; Re Seabay Kitchen Pty Ltd [2019] NSWSC 790 at [12]; Re Embedded Claims Pty Ltd [2021] NSWSC 969 at [8]. However, I am not persuaded that the Court would exercise a judicial discretion to make such an order unless Dr Iqbal is prepared to comply with his corresponding obligation under the GPA to subscribe the relevant monies to MTD. I will reserve liberty to Dr Iqbal to apply, within seven days of delivery of this judgment, if he is prepared to do so and wishes to seek relief of that character conditional upon his doing so.

Relief in oppression

1. Mr Johnson submits that the removal of Dr Iqbal from the share register is oppressive or unfairly prejudicial or unfairly discriminatory against him as a member of MTD for the purposes of s 232 of the Corporations Act and seeks the relief specified in paragraphs 1, 5 and 6 of the Originating Process under s 233(1)(c), (d) or (e) of the Corporations Act. Dr Iqbal has standing to seek such orders under s 233 of the Act where the parties proceeded on the basis that he had initially been a shareholder in MTD.
2. However, it seems to me that there is no basis for making the first order sought for production of documents on this basis where, as I noted above, there will be no utility in production of documents that appear to be directed to the issues in the proceedings after they have been determined. The fifth order sought by Dr Iqbal on this basis is an order that there be an inquiry into loss or damage occasioned following upon the cancellation of the shares previously registered in his name in MTD. By their Grounds of Opposition, the Active Defendants deny that Dr Iqbal suffered any such loss or damage. It appears to be common ground between the parties that Dr Iqbal was initially a shareholder in MTD and the findings which I have reached above have the result that any shares previously held by Dr Iqbal in MTD would not have been "cancelled" (as the relief sought assumes) or transferred to Dr Ahmed. I am not persuaded that the fifth order sought by Dr Iqbal should be made, where the premise of such a cancellation of the shares is not established and Dr Iqbal has led no evidence that he suffered any loss or damage, and it was a matter for Dr Iqbal to lead such evidence at this hearing if he sought to establish such loss or damage or claim relief in respect of it.
3. The sixth order sought by Dr Iqbal is that: "a valuation be obtained in respect of the shareholding of [Dr] Iqbal in [MTD] and that [MTD] and/or other shareholders who have received such benefit pay compensation to [Dr] Iqbal." Presumably, the reference to "such benefit" here is to the benefit derived from a transfer of Dr Iqbal's shares in MTD to Dr Ahmed or other shareholders. By their Grounds of Opposition, the Active Defendants resist such a valuation on the basis that Dr Iqbal is not a shareholder in MTD and is not entitled to receive any such compensation. As Mr Johnson fairly accepted in the course of oral submissions that there is no utility in ordering a valuation of Dr Iqbal's shares in MTD. First, the findings that I have reached have the result that any transfer of those shares to Dr Ahmed or other shareholders did not take effect; and, second, Dr Iqbal does not seek orders that he buy the shares of other shareholders in MTD or that they buy his shares, so it is not apparent what would be done with such a valuation if it were obtained. So far as Dr Iqbal also seeks an order that MTD and/or other shareholders "who have received such benefit" pay compensation to him, they have not received an effective transfer of such shares and there is no evidence that they have received any other benefit, and no basis to make such an order. Dr Iqbal does not pursue the alternative relief initially claimed under s 461(1)(k) of the Corporations Act that MTD be wound up.

Delay

1. In submissions, Mr White also relies on delay, where Dr Iqbal had not raised a claim in respect of the transfer of his shares in MTD until April 2020, and did not commence the proceedings until December 2020. Mr Johnson contends that it is not open to the Active Defendants to rely on delay, where delay was not raised in their Grounds of Opposition to the relief sought by Dr Iqbal. It is not necessary to determine this question, where, as matters stand, none of the relief sought by Dr Iqbal would be granted for other reasons.

Summary and orders

1. In summary, Dr Iqbal has succeeded in establishing that the GSA does not document the relationship between the parties and that no effective corporate step was taken to transfer any shares that he held in MTD. He has not established the basis for any other relief that he sought, although I will reserve liberty for him to apply within 7 days to seek an order under s 1322 of the Act that a share register for MTD be brought into existence and that he be recorded as a shareholder in MTD, or that ASIC's records be rectified to record him as a shareholder in MTD, on terms that he pay the amount that he contracted to pay the initial capital in consideration of his acquisition of the shares in MTD. If Dr Iqbal does not exercise that liberty to apply within seven days, then the proceedings should be dismissed without any relief being ordered in his favour. My preliminary view is that, in that case, there should be no order as to the costs of the proceedings, where relief sought and the result of the proceedings will not resolve any wider issues as to the future conduct of MTD's affairs. In those circumstances, it does not seem to me that it could be fairly said that either party had been successful in the outcome of the proceedings.
2. I direct the parties to bring in agreed orders to give effect to this judgment, or otherwise their respective orders and short submissions as to the differences between them, within 14 days.

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: 13 August 2021