Edman v Ross

Supreme Court of NSW|2024-12-16|Before: Nixon J

EX TEMPORE JUDGMENT - REVISED 19 DECEMBER 2024

By Originating Process filed 9 August 2024, the Plaintiff, Ms Leonie Merker, seeks orders that the Second to Thirteenth Defendants (the Corporate Defendants) provide the Plaintiff and any professional adviser of the Plaintiff with access to, and permit copying of, the books and records specified in Schedules A and B to the Originating Process (the Books and Records).
At the hearing of this application, the Plaintiff sought access to the Books and Records for herself and for two nominated professional advisers - Mr Lindsey Somerville and Mr Gary Calford - as well as any members of their respective staff who are assisting them. The Plaintiff sought access on the basis that each of the Plaintiff, Mr Somerville and Mr Calford would give an undertaking not to disclose the Books and Records, or the information contained in them, to Mr Sam Morris, Mr Warwick Kerridge, or any other person, without the prior written consent of the Corporate Defendants, subject to the Plaintiff being able to use the information for the purpose of seeking and obtaining legal advice in relation to issues identified by Mr Somerville or Mr Calford, provided that those lawyers have first given an undertaking in the same terms.
The Corporate Defendants indicated, at the hearing, that they did not oppose the Plaintiff, Mr Somerville and Mr Calford being provided with access to the Books and Records on the basis of such an undertaking, subject to a number of matters.

Factual background

The Plaintiff has been a director of the Corporate Defendants since 1 November 2023.
The Corporate Defendants comprise the Neilsen Group, which was founded by the Plaintiff's parents, who are both now deceased. It is one of the largest independently owned concrete and quarry operations in Queensland.
The ultimate beneficial owners of the Neilsen Group are the Plaintiff and her brother (who was previously named as First Defendant).
The Plaintiff was appointed as director of the Corporate Defendants following Federal Court proceedings, which were resolved by a deed of settlement dated 5 October 2023.
The deed of settlement provided for the Plaintiff's appointment as a director of the Corporate Defendants, and also provided that she was entitled to appoint two non-executive directors, namely, Mr Paul Simonds and Mr Alan Myers AC KC (who were ultimately appointed on 23 August 2024 and 24 September 2024 respectively).
The Plaintiff has been provided with access to some, but not all, of the Books and Records. However, this has been provided on a read only basis, and the Plaintiff has not been able to provide this material to her advisers.
Mr Somerville has been retained as the Plaintiff's personal adviser. He has over forty years of professional advisory experience in taxation, accounting, financial, business, legal and related advisory services. Mr Somerville swore an affidavit in support of the Plaintiff's application, and was cross-examined.
Mr Calford is a partner at Moore Australia, and has over twenty-two years of experience with top and second tier accounting firms. He also swore an affidavit in support of the Plaintiff's application, but was not required for cross-examination.
Gillis Delaney are the Plaintiff's solicitors in this proceeding. They also acted for the Plaintiff in the Federal Court proceedings which commenced in December 2020. Mr Collinge, a partner of that firm, swore an affidavit in support of the Plaintiff's application and was cross-examined.

First dispute: Undertaking that advice directed to performance of duties

As a director, the Plaintiff has a statutory right of access to the financial records of the Corporate Defendants, pursuant to s 290 of the Corporations Act 2001 (Cth). Further, at general law, she has a right of access to the books and records of those companies: von Bernstorff v Balamara Resources Limited [2023] FCA 757 at [29]-[35] (Cheeseman J) and the authorities there cited.
The right of access to documents carries with it the right to take copies and a right to engage agents to carry out the inspection: Re Geneva Finance Ltd; Quigley v Cook (1992) 7 WAR 496 at 507; [1992] WASC 209 (Owen J); Oswal v Burrup Fertilisers Pty Ltd [2013] FCAFC 9 at [77] (Dowsett, Foster and Nicholas JJ).
The Court will, in "the absence of clear proof to the contrary", assume that the director will exercise the right of access for the benefit of the company: Edman v Ross (1992) 22 SR (NSW) 351 at 361 (Street CJ in Eq).
The prima facie entitlement of a director to access may be displaced where there is evidence that the director seeks to inspect documents, not in aid of the proper execution of his or her fiduciary obligations but, to the contrary, with a view to the apprehended detriment of the corporation: Molomby v Whitehead (1985) 7 FCR 541 at 551; [1985] FCA 412 (Beaumont J).
Generally speaking, a court will presume that a director intends to act in a way consistent with their duties and not to abuse the confidence reposed in them by using information for an improper purpose; and, in the absence of clear proof that a misuse of power is involved (the onus of which lies on those asserting it), the court will be slow to prevent the exercise by a director of a right of access: Geneva Finance at 507; adopted in Oswal v Burrup at [74], [77].
In the present case, the Corporate Defendants did not advance at the hearing any submission to the effect that there was clear proof which established that the Plaintiff will not exercise the right of access for the benefit of the Corporate Defendants or that a misuse of the power was involved.
Such a contention had been advanced in the Corporate Defendants' written submissions. If this had been established, it would have provided a basis for refusing access altogether.
The question which arises is whether, in circumstances where no such allegation has been advanced or established at the hearing, the Court should impose, as a condition of access, that any advice sought or obtained in relation to the Books and Records should "be directed to the performance of the Plaintiff's role as a director of the Corporate Defendants".
As set out above, the Court must assume, in the absence of clear proof to the contrary, that the director intends to exercise the right of access in aid of the proper execution of their fiduciary obligations. Given that there is no allegation, let alone clear proof to the contrary, this application is to be determined on the basis of that presumption.
Further, and in any case, there was evidence from Mr Somerville that he has been retained to advise the Plaintiff in relation to her role as a director of the Corporate Defendants, and that access to the Books and Records has been required "for the purposes of obtaining the information she required to properly make decisions and fulfil her responsibility as a director of the Relevant Companies".
In addition, there was unchallenged evidence from Mr Calford that his firm, Moore Australia, has been asked "to identify for Ms Merker any issues of which she ought be aware as a director".
In circumstances where: 1. the Court is to assume that the Plaintiff intends to act in a way consistent with her duties and to exercise the right of access for the benefit of the Corporate Defendants; 2. there is unchallenged evidence regarding the advice which the Plaintiff has sought (and, in particular, that advice has been sought in respect of the performance of her duties as a director of the Corporate Defendants); and 3. there is no allegation, let alone proof, that access is being sought for an improper purpose; I am not satisfied that the Corporate Defendants have identified or established any grounds for requiring, as a condition of access, an undertaking from the Plaintiff or her advisers that any advice be directed to a proper purpose.
There is, further, a difficulty with the proposed form of undertaking. It is not clear whether this would be breached if advice was directed at two purposes, one of which was the stated purpose. In particular, it is not clear whether the undertaking would only be met where the specified purpose was the sole purpose of the advice, or would be met so long as the specified purpose was the dominant purpose of the advice, or would be met so long as the specified purpose was one of a number of purposes of the advice. In addition, it may be artificial to categorise advice on any particular issue as being directed to, say, the Plaintiff's interests as one of the ultimate beneficial owners of the Neilsen Group rather than as being directed to the Plaintiff's role as a director of companies within that Group. For example, an issue regarding the potential impacts of proposed commercial decisions of management could be relevant to both.
The Corporate Defendants did not identify any case in which such a condition had been imposed on access to books and records. They referred to Edman v Ross, where Street CJ in Eq expressed the view that the plaintiff's adviser should give an undertaking "that the knowledge which he acquires will not be used for any other purpose than that of giving confidential advice to the plaintiff with regard to his interests" (at 362). There are two points to note. First, the facts of that case are readily distinguishable. In particular, the plaintiff director had announced that he intended, upon retiring from his position as managing director, to become a competitor by going into a similar business on his own account (at 356); and Street CJ in Eq accepted that there were matters that cast doubt on the plaintiff's candour and good faith (at 362). Secondly, even in those circumstances, his Honour was not satisfied that there was a basis for interfering with his rights as a director. Nor did his Honour require the plaintiff, or the plaintiff's adviser, to give an undertaking only to give advice directed to matters relevant to the plaintiff's discharge of his duties as a director. Instead, the undertaking required from the plaintiff's adviser was, in effect, that the adviser would keep the material confidential and would only use the material for the purposes of the engagement (advising the plaintiff "with regard to his interests").
In the present case, the Plaintiff has already offered that she and her advisers will give an undertaking to keep the material confidential and not to disclose the material to any other person, save for disclosure to lawyers who will also give a similar undertaking, for the purpose of seeking legal advice on the issues identified by her advisers.
Accordingly, I reject the Corporate Defendants' contention that there is a need or basis to impose a further condition of the type sought by them.

Second issue: Identity of Lawyers

The Corporate Defendants contended, in effect, that it should be a condition of access that any legal advice which the Plaintiff seeks should be sought from someone other than her current solicitors.
The Corporate Defendants initially appeared to propose this restriction on two bases, one being that there was some association or connection between Gillis Delaney and Mr Sam Morris, and another being that there was reason to believe that confidentiality obligations had not been observed in the past.
As matters transpired, there was no submission advanced in closing to the effect that the Court should conclude that a legal practitioner at Gillis Delaney would not comply with an express confidentiality undertaking.
The evidence of a past connection between Gillis Delaney and Mr Sam Morris was limited in scope. Mr Morris had introduced the Plaintiff to Gillis Delaney, and Mr Morris had previously communicated requests from the Plaintiff for advice, and had received responses to those requests.
Whatever the position may have been in the past, the fact remains that it is proposed that any lawyer (whether at Gillis Delaney or otherwise) who gains access to the material does so on the basis of an express undertaking not to disclose any of the material to Mr Morris. There is no reason to conclude that there is a real risk that any legal practitioner, including one at Gillis Delaney, would fail to act in accordance with that undertaking.
Ultimately, the Corporate Defendants contended for such a condition on the basis that Gillis Delaney had been the Plaintiff's solicitor for a number of years, including through hard fought litigation in the Federal Court; that one partner of Gillis Delaney was "involved" with an entity which had funded the Plaintiff's litigation (in circumstances where there was no evidence of the nature of such involvement); and that, in those circumstances, it was appropriate that the Plaintiff use different lawyers to advise her on matters relating to her role as a director.
The issue is not whether it would be appropriate to seek advice from someone else. The issue is whether it is inappropriate to seek such advice from Gillis Delaney, such as to justify the extraordinary step of placing some restriction on the Plaintiff's ability to seek advice from a lawyer of her own choosing.
The Corporate Defendants did not establish a basis to conclude that it would be inappropriate to do so, and therefore did not establish a basis for a restriction on the Plaintiff's choice of lawyer.

Costs

The final issue is that of costs.
The Plaintiff has been successful on the issues argued at the hearing, and therefore the starting point is that costs should follow the event, unless it appears to the Court that some other order should be made as to the whole or any part of the costs: Uniform Civil Procedure Rules 2005 (NSW), r 42.1.
The Corporate Defendants contended that there was a basis for making another order, namely, that the Plaintiff had substantially changed her position at the hearing, by seeking a much narrower form of relief than was sought in her Originating Process.
I do not accept this submission.
On 25 July 2024, the Plaintiff's solicitor wrote to the Corporate Defendants' solicitors seeking access to specified books and records of the Corporate Defendants. The books and records sought in that letter were essentially the same as the Books and Records which are the subject of this application.
In that letter, the Plaintiff proposed that the agents who would be nominated by her to inspect the Books and Records and to advise her in relation to those Books and Records would be Mr Somerville and Mr Calford, who would sign confidentiality agreements. At that stage, the Plaintiff stated that she reserved her right to nominate other agents who would need to enter suitable confidentiality agreements.
The Plaintiff then commenced the proceeding on 9 August 2024, seeking access for herself and "any professional adviser of the plaintiff".
On 12 August 2024, the Corporate Defendants' solicitors wrote to the Plaintiff's solicitors, responding both to the 25 July 2024 letter and to the relief sought in the Originating Process. (The Corporate Defendants did not suggest that the relief sought in the Originating Process was substantially different from what had been proposed in the 25 July 2024 letter)
Further, the Corporate Defendants did not respond to the 25 July 2024 letter and the Originating Process by indicating, as they did at the hearing, that there was no issue with access by Mr Calford or Mr Somerville, but there was an issue with access by other persons.
Instead, the Corporate Defendants stated that they would not comply with the request in the 25 July 2024 letter for the Plaintiff and her advisers to have access to the Books and Records for two main reasons: 1. first, they contended that an inference should be drawn that the Plaintiff's purpose in seeking the information identified in the 25 July 2024 letter was not connected with the proper performance of her duties as a director; and 2. secondly, they contended that to make the specified books and records available to the Plaintiff would "impose an unusual and onerous burden on the Group and would involve a significant diversion of the Group's resources".
In her written submissions dated 29 November 2024, the Plaintiff stated: "for the avoidance of doubt, the access the subject of these orders is access by the plaintiff and her nominated professional advisers [Mr Somerville and Mr Calford being the only persons nominated in the submissions] who have signed express written confidentiality undertakings addressed to the defendants in which they undertake to use the books and records and information contained therein for the sole purpose of providing advice and assistance to the plaintiff and not to disclose or otherwise use the same for any other purpose without the prior written consent of the defendants or further order of the court".
In their written submissions in response dated 6 December 2024, the Corporate Defendants did not indicate that the Plaintiff's proposal that the Books and Records be disclosed to herself, Mr Somerville and Mr Calford was acceptable, so long as there was an express undertaking not to disclose the material to Mr Morris and Mr Kerridge.
Instead, the Corporate Defendants maintained both of the grounds of opposition that had been set out in their solicitor's letter of 12 August 2024. In particular, they advanced the following submissions in answer to the Plaintiff's application: "The court could comfortably infer that the application is for an improper purpose. … Ms Merker's attempt to gain information is therefore not for the purpose of discharging her duties as a director. Further, compliance with the orders sought by Ms Merker would place a significant and onerous burden on the Neilsen Group. This further confirms that the information request is not in the best interests of the Neilsen Group and that it is inappropriate for Ms Merker, as a director acting in the best interests of the relevant companies, to pursue the application."
The Corporate Defendants did not press, let alone establish, either of those grounds of opposition at the hearing.
In circumstances where the Corporate Defendants refused to grant access to the Books and Records on grounds which were not ultimately pursued, and where the Corporate Defendants advanced other submissions at the hearing which were not successful, I am not satisfied that there is any reason for departing from the general rule that costs follow the event.
Further, I do not accept that there was a substantial change between the Plaintiff's position in the Originating Process and her position at the hearing. In the Originating Process and at the hearing, the Plaintiff sought access to all of the Books and Records specified in Schedule A and Schedule B. In the Originating Process and at the hearing, the Plaintiff sought not only access to those materials, but also an order that she be permitted to copy those materials. In the Originating Process and at the hearing, the Plaintiff sought access not only for herself but also for professional advisers. In correspondence sent shortly before the Originating Process, and in her submissions for the hearing, she nominated Mr Somerville and Mr Calford as advisers for whom she sought access on that basis that they give express confidentiality undertakings. In each of those respects, the Plaintiff has been successful.
Accordingly, the Plaintiff is entitled to her costs of the application.

Orders

Following the hearing, I directed the parties to provide short minutes of order to give effect to these reasons for judgment. For the reasons set out above, I subsequently made the following orders: 1. By 20 January 2025, the second and fourth to thirteenth defendants provide access to the plaintiff and her nominated professional advisers, Mr Somerville and Mr Calford (and their staff) to the books and records described in Schedule A and Schedule B to the Originating Process, being access of a kind that will enable her to read, download, print and copy the books and records and information contained therein. 2. The plaintiff will pay any additional expense or cost of the second and fourth to thirteenth defendants in providing access to the books and records referred to in order 1. 3. In the event the second and fourth to thirteenth defendants consider that the provision of access to particular categories of documents will involve significant expense they will notify the plaintiff with an estimate of the expense involved and will not incur the expense of producing those documents until the plaintiff confirms access to those documents is sought. 4. The second and fourth to thirteenth defendants to pay the plaintiff's costs of the proceedings.
Additionally, I made the following notation: 1. The plaintiff, Mr Somerville, Mr Calford each undertake, and their staff will undertake prior to being provided with any documentation, not to disclose the documentation, or information contained in the documentation, the subject of these access orders to: 1. Mr Sam Morris; 2. Mr Warwick Kerridge; or 3. anyone else, without the prior written consent of the second and fourth to thirteenth defendants, subject to the plaintiff being able to use the documents and information for the purpose of seeking and obtaining legal advice in relation to the issues identified by Mr Somerville or Mr Calford provided those lawyers have first given an undertaking in the same terms.

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: 19 December 2024

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