Engel v National Biodiesel Limited

IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 890 of 2015

AND: NATIONAL BIODIESEL LIMITED ACN 119 403 539

JUDGE: MARKOVIC J DATE: 22 OCTOBER 2015 PLACE: SYDNEY

Background 1 The plaintiff, Mr Thorsten Engel, is a member of the defendant, National Biodiesel Ltd (NBL). He acquired his shares on about 1 June 2011 and holds one million of the 231,819,700 ordinary shares on issue as at 8 July 2015. 2 Mr Engel seeks an order pursuant to s 247A(1) of the Corporations Act 2001 (Cth) (the Act) permitting him, the employees of his solicitors and any accountant nominated by him, to inspect and take copies of specified books of NBL which are set out in the schedule to the originating process (the Schedule). Mr Engel is concerned about a number of transactions entered into by NBL or its subsidiary at the time, National Biodiesel Distributors (Australia) Pty Ltd (NBDA). His purpose in seeking the order for inspection is to put him in a position to take steps to protect his investment and to ascertain whether he should commence proceedings as a result of those transactions. 3 In support of his application, Mr Engel relies on two affidavits sworn by him on 28 July 2015 and 25 September 2015 respectively. 4 NBL relies on an affidavit sworn by Mr Bradley Wheaton, the former chief executive officer of NBL, on 18 September 2015. 5 Prior to the matter coming on for hearing, the parties' representatives had been in discussions. As a result of those discussions I was provided with two competing sets of draft orders: one prepared by the plaintiff and one prepared by the defendant. The effect of the two drafts and the argument before me was to narrow the issues such that, leaving aside costs: (1) the defendant does not dispute that the plaintiff meets the requirements of s 247A(1) of the Act for the purposes of making an order for inspection under that section; (2) however, issues arise in relation to some of the categories of documents of which inspection is sought. Of the fifteen categories of documents in the Schedule, seven categories remain in dispute; (3) there is an issue about confidentiality. The defendant seeks a confidentiality order limiting the disclosure of the documents that are the subject of any order pursuant to s 247A(1) of the Act.

Legal framework 6 The relevant sections of the Act for the purpose of considering the matters that are in issue are sections 247A, 247B and 247C. Section 247A of the Act relevantly provides: 247A Order for inspection of books of company or registered managed investment scheme (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. (2) A person authorised to inspect books may make copies of the books unless the Court orders otherwise. …….. 7 Sections 247B and 247C of the Act provide: 247B Ancillary orders (1) If the Court makes an order under section 247A, the Court may make any other orders it considers appropriate, including either or both of the following: (a) an order limiting the use that a person who inspects books may make of information obtained during the inspection; (b) an order limiting the right of a person who inspects books to make copies in accordance with subsection 247A(2). 247C Disclosure of information acquired in inspection (1) A person who inspects books on behalf of an applicant under section 247A must not disclose information obtained during the inspection. (2) Subsection (1) does not apply to the extent that the disclosure is to: (a) ASIC; or (b) the applicant. Note: A defendant bears an evidential burden in relation to the matter in subsection (2), see subsection 13.3(3) of the Criminal Code. (3) An offence based on subsection (1) is an offence of strict liability. Note: For strict liability, see section 6.1 of the Criminal Code. 8 It is convenient to set out the summary of principles relevant to an application under s 247A of the Act and its predecessors extracted by Debelle J in Acehill Investments Pty Ltd v Incitec Ltd [2002] SASC 344 (Acehill Investments) at [29]: 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. 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. 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) … 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 … or where a shareholder seeks to ascertain facts for the purpose of considering a takeover offer …. 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. 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. 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. 7. Applicants do not necessarily lack a proper purpose merely because (a) they are hostile to other directors; or (b) they will, after inspection, have more information than other members. 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 …. 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. [Citations omitted.] 9 The principles set out in Acehill Investments have been cited with approval in this Court: see for example Re Style Ltd; Merim Pty Ltd v Style Ltd (2009) 255 ALR 63 (Re Style) and Hanks v Admiralty Resources NL (2011) 85 ACSR 101 (Hanks). Further principles have developed. In Hanks, Gordon J at [32] set out eight additional principles emerging from the authorities: 1. An applicant who has a significant holding and who has been a shareholder for some considerable time will more easily discharge the burden of showing good faith than one who has recently acquired a token holding. 2. An applicant need not show a difference between its interests and those of other shareholders. 3. The words "proper purpose" means a purpose connected with the proper exercise of the rights of a shareholder as a shareholder, as opposed to the purpose connected with some other interest, such as an interest as a bidder under a takeover scheme, or as a litigant in proceedings against the company. 4. Pursuing a reasonable suspicion of breach of duty is a proper purpose for seeking an inspection of a company's records. 5. It is not necessary that the applicant have sufficient evidence to bring or make out an action …. Moreover, an applicant does not need to establish that it will succeed in any future claim. It is sufficient if the issue raised by the applicant is "substantive and not fanciful" and not "artificial, specious or contrived". 6. Unsurprisingly, on the hearing of an application under s 247A, the Court should not determine any substantive questions and should not attempt to do so. 7. Delay, on the basis that [the] applicant may have had sufficient information at an earlier point in time to make a decision on which course it may wish to take, is not detrimental to an application under s 237A [sic]. 8. An applicant cannot be said to be not acting in good faith or seeking inspection for an improper purpose merely because the applicant may have means of obtaining the information elsewhere. [Citations omitted.] 10 In Re Style, Goldberg J in dealing with the exercise of the Court's discretion said at [71] that in granting an order for inspection under s 247A of the Act it is not appropriate to allow a "wholesale and general inspection". The books to be inspected should be "books that bear on" and that are "particularly relevant to, the purpose for which the inspection is sought". This approach was followed in assessing the relevance of categories for inspection by Robertson J in London City Equities Ltd v Penrice Soda Holdings Ltd (2011) 84 ACSR 573 at [47].

Facts 11 Mr Engel raises particular transactions entered into by NBL or its subsidiary at the time, NBDA, which he is concerned may have impacted on the value of his investment in NBL and which warrant investigation. They are: (1) the status of a loan from NBL to National Biofuels Group Pty Limited (NBG), a shareholder in NBL, and the transfer of trademarks from NBG to the defendant including: the reason for their acquisition, the price at which they were acquired and their subsequent assignment to NBDA; (2) the establishment of NBDA and the subsequent transfer by NBL of its interest in NBDA; (3) the circumstances surrounding a loan to NBDA from Energreen Nutrition Australia Pty Ltd (Energreen); (4) the sale of NBDA's distribution business to Petro National Pty Ltd (Petro National), a subsidiary of National Holdings Australia Limited (NHA). 12 In his affidavits, Mr Engel sets out the facts of which he is aware which relate to these transactions. They can be summarised as follows: (1) on 1 June 2011, Mr Engel acquired 1 million shares in NBL for $1.2m. At the time of acquiring his shares, Mr Engel relied on an information memorandum issued by NBL in March 2011 for the issue of ordinary shares. That memorandum included the following: (a) a description of the business model which would combine the "vertical integration of a Soybean crushing plant alongside its own Biodiesel refinery"; (b) that NBL had the exclusive use of two trademarks owned by its major shareholder, NBG: Soybiodiesel and Soydiesel (the Trademarks); and (c) that NBL had secured, through a long term lease from the Port Kembla Port Corporation, industrial premises for its manufacturing complex; (2) at all relevant times NBG was the major shareholder in NBL holding approximately 88% of its issued shares; (3) NBL's financial report for the year ending 30 June 2011 (FY11 Report) discloses NBG owed NBL $6,307,031 which was to be repaid once a subsidiary of NBG had completed a capital raising; (4) at that time, NBL continued to have exclusive use of the Trademarks; (5) according to NBL's financial report for the year ending 30 June 2012 (FY12 Report), NBL acquired the Trademarks from NBG in that financial year for $7.6m. The FY12 Report states that the "value [of the Trademarks] has been determined based on a report issued by an independent valuer"; (6) in addition, the FY12 Report: (a) does not record the loan to NBG; (b) provides that NBL had non-current assets of $6,307,031 in 2011 and nil in 2012; (c) provides that NBL had non-current "Amounts owed by group companies" of $6,307,031 in 2011 and nil in 2012; (d) provides that "Loans to related parties" and "Receivables with group companies" were $6,348,738 in 2011 and are $31,987 in 2012; and (e) states that the transaction to acquire the Trademarks is "not reflected in the statement of cash flows as they were settled through the intercompany account"; (7) by about October 2013, the directors of NBL were Messrs Wheaton, Ian Armstrong, Kevin Hughes and James Henderson and Ms Gillian Smith and the directors of NBG were Messrs Armstrong and Henderson and Ms Smith; (8) by a notice to shareholders from NBL dated 7 March 2014, Mr Engel was notified of: (a) the establishment of a subsidiary, NBDA, to conduct the fuel importation, storage and distribution operations of the group; (b) the transfer to NBDA of certain assets and employees; (c) the execution of an agreement with Gary Donald Seaton to "strategically invest" in NBDA; and (d) the appointment of Mr Seaton to the NBDA board; (9) NBL owned 70% of the shares in NBDA. The remaining 30% of the shares were owned by JSKS Enterprises Pty Limited (JSKS Enterprises), a company of which Mr Seaton was and is the sole director and secretary; (10) on about 28 April 2014, pursuant to a deed of assignment bearing that date, the Trademarks were assigned by NBG to NBL and then by NBL to NBDA. It is appropriate to note at this point that Mr Wheaton's evidence is that the failure by NBG to assign the Trademarks to NBL in 2012, when the relevant transaction between NBG and NBL took place, was an oversight; (11) the financial report of NBL for the year ending 30 June 2014 (FY14 Report) records that: (a) the Trademarks had a carrying value of $7.6m at the beginning of the year, impairment of intangibles was ($1,697,931) and that the "carrying amount at the end of the year" was $5,902,069; (b) $1.8m was received in relation to "proceeds from disposal of shares of subsidiary"; (c) $150,000 is owing by JSKS Enterprises to NBL; (d) proceeds "from related parties, net" are $3,665,759 and an "Amount owed to related parties" payable to "Energreen" is $3,665,759. The loan from Energreen was to fund a shipment of biodiesel in early 2014. Interest is payable at the rate of 10% per annum; (12) at the time of the loan from Energreen to NBDA, Mr Seaton was a director of NBDA and the sole director of Energreen; (13) on 12 June 2015, Petro National was registered. Its two directors are also directors of NBL; (14) according to a Form 484 Change to Company details for NBDA dated 19 June 2015 obtained by Mr Engel from ASIC: (a) on about 14 June 2015, NBL transferred its 14 million ordinary shares and 350,000 preference shares in NBDA to JSKS Enterprises; (b) JSKS Enterprises paid a total of $20m for its 20 million ordinary shares and a total of $500,000 for its 500,000 preference shares; (15) a current and historical organisational extract for NBDA dated 8 July 2015 shows that JSKS Enterprises owns 20 million ordinary shares but records that the total paid or taken to be paid for those shares is $6m; (16) until 15 June 2015, NBL, NBG and NBDA had common directors namely Messrs Wheaton and Armstrong; (17) on 3 July 2005, Mr Engel received a notice to shareholders of NBL and NHA which, among other things, notified that NBL had entered into an agreement with JSKS Enterprises to sell and assign NBDA's "distribution business assets" to a subsidiary of NHA, Petro National. 13 Mr Wheaton's affidavit sets out a number of matters which he says are relevant to Mr Engel's concerns including that: (1) the exclusive licence to use the Trademarks required NBL to pay a royalty to NBG which came to an end after their acquisition. Mr Wheaton does not specify the cost to NBL of the royalty; (2) in relation to the transfer of NBL's ownership in NBDA, JSKS Enterprises is not a related party, the transaction was a third party transaction for "market value" in circumstances where no member of the board had any conflict and the information provided to shareholders was the "normal level of detail provided in respect of business decisions that are made by the board"; (3) the interest rate on the loan by Energreen to NBDA was a reasonable rate given its commercial terms and the fact that it was unsecured. Mr Wheaton notes that the secured facility from Macquarie Bank Limited which was available to NBDA had an effective annual cost of funds in excess of 12%; (4) in relation to the transfer by NBDA of its business to Petro National, it is not normal corporate practice to provide shareholders with a full copy of commercial in-confidence agreements entered into by a company. A summary of the transaction and the directors' view of it was provided to shareholders in the July 2015 notice to shareholders. 14 It was submitted on behalf of NBL that Mr Engel's concerns need to be considered in the context of NBL's operating environment at the time. In particular, the July 2015 notice to shareholders included in Exhibit TE1 to Mr Engel's affidavit sworn 28 July 2015 included the following statement: We previously reported that NBDA had an extremely difficult trading period during the financial year to date and will record significant losses for the year. The Federal Government changes to fuel excise and the Cleaner Fuels Grants Scheme were introduced 1 July 2015. The policy changes have made the importation of biodiesel unviable and have made the previous business model of NBDA unsustainable. That is, NBL was operating in a changing environment to which it had to react. The transactions complained of took place in that context.

Good faith and proper purpose 15 The terms of s 247A(1) of the Act specify that the Court can only make an order for inspection if it is satisfied that the applicant, in this case Mr Engel, is acting in good faith and for a proper purpose. Counsel for the defendant conceded in oral submissions that purpose was not in issue between the parties. Notwithstanding the attitude of the defendant, before orders can be made under s 247A(1), the Court must still reach a level of satisfaction about the good faith and proper purpose requirements. 16 I am satisfied on the evidence that Mr Engel has a genuine concern about the transactions he has described in his evidence. The facts disclose that those transactions are largely between related companies with common directors at relevant points in time and appear to have had the effect of moving assets out of NBL. Mr Engel deposes to his specific concerns about the transactions he has identified. Mr Engel has demonstrated that there is a case for investigation into those transactions. 17 Mr Engel's ultimate concern is that the transactions which he would like to further investigate have had the effect of diluting the equity of NBL and thus his shareholding in the company. It is apparent that Mr Engel's primary purpose in seeking inspection is to investigate the circumstances surrounding the transactions so that he can determine whether he should commence proceedings. I am satisfied that Mr Engel has established that he is acting in good faith and for a proper purpose in seeking inspection of the documents in the Schedule. 18 I turn now to consider those categories of the Schedule which are in dispute.

Category 2 19 Category 2 seeks any agreement executed by NBG relating to the repayment by, or forgiveness of, any loans during the Period which were made by NBL to NBG. The Period is from 1 July 2010 to 1 July 2015. 20 Counsel for Mr Engel submits that Mr Engel should be entitled to any agreement that records the repayment or forgiveness of a loan from NBL to NBG because Mr Engel does not know how the repayment or forgiveness of the loan to NBG recorded in the FY11 Report occurred. That is there may be more than one agreement, document or other record evidencing a repayment or forgiveness of a part of the loan rather than a single document. 21 Counsel for NBL submits that Mr Engel's evidence is about a particular loan from NBL to NBG for $6,307,031. It follows that the category should be restricted to that loan and not documents evidencing the repayment or forgiveness of all loans over a five year period. 22 In my view, adopting the approach taken in Re Style, category 2 as framed in the Schedule is too broad. It is not limited to the loan about which Mr Engel is concerned and thus seeks documents that go beyond those that bear on and are relevant to the purpose for which inspection is sought: an investigation of arrangements in place to repay or forgive the loan of $6,307,031 from NBL to NBG. 23 NBL has proposed an amendment to category 2 which I will adopt subject to a further amendment to address the concern raised on behalf of Mr Engel.

Categories 7, 8, 10 - 12 24 Categories 7, 8 and 10 to 12 are in the following terms: (7) Any agreement executed by the defendant, NBDA or any related entity of the defendant and JSKS Enterprises Pty Limited ACN 105 475 170 (JSKS) relating to the investment of JSKS in NBDA during the 2013-14 financial year. (8) Any agreement executed by the defendant, NBDA or any related entity of the defendant and JSKS relating to the investment by JSKS in NBDA which resulted in the total ownership of NBDA by JSKS. … (10) Any agreement recording or relating to Mr Seaton's appointment to NBDA's Board. (11) Any loan agreement executed by Energreen Nutrition Australia Pty Limited ACN 089 953 560 (Energreen) and NBDA during the Period. (12) Any agreement between NBDA and Petro National Pty Limited ACN 606 401 325 (Petro National) relating to the transfer of NBDA's assets to Petro National. 25 The same issue arises in relation to each of these categories. It turns on the meaning of the phrase "books of the company". It was submitted on behalf of NBL that confidential agreements entered into by subsidiaries, to which NBL is not a party, are not "books of the company". In her oral submissions, counsel for NBL made two further points. Firstly, that it may be a matter for the Court's discretion. If for example some of the agreements caught by the categories in question were included as part of NBL's board papers then they would potentially be caught by category 15 (which I deal with below). I take that submission to mean that documents of that nature would be amenable to inspection but in response to a different category. Secondly, an application under s 247A(1) of the Act should not be used as a method of obtaining documents from other entities, including subsidiaries, where the applicant is not a member of those entities. NBL proposed an amendment to each of these categories by the addition of the words "to which the defendant is a party". That would, in NBL's submission, make the documents sought in each case "books of the company". 26 The definition of "books" in s 9 of the Act is in broad terms and is as follows: books includes: (a) a register; and (b) any other record of information; and (c) financial reports or financial records, however compiled, recorded or stored; and (d) a document; but does not include an index or recording made under Subdivision D of Division 5 of Part 6.5. 27 Section 247A confines inspection to books of the company. Neither party could point me to any authority on the meaning of this phrase generally or in the context of s 247A. Counsel for NBL referred to Intercapital Holdings Ltd v MEH Ltd (1988) 13 ACLR 595 in which Brooking J ordered inspection of books in relation to an act done by the subsidiary of the company of which the applicant in that matter was a member. However, in doing so and in rejecting a submission that it was not a proper use of the section (at the time s 265B of the Companies Code) to obtain inspection of documents for the purpose of investigating, and possibly challenging, an act done by the subsidiary of the company of which the applicant is a member, Brooking J noted at 603 that: It should be noted that Mr Merkel has not submitted that I should not take the view that the parent's books, whatever that expression may here comprise, include documents that relate to the acquisition, notwithstanding that the acquisition came ultimately to be made by the subsidiary. 28 In Areva NC (Australia) Pty Ltd v Summit Resources (Australia) Pty Ltd (No 2) [2008] WASC 10 (Areva), Martin CJ considered whether the drafts of a statement of evidence were "books of a company" for the purpose of s 247A of the Act. In doing so, he followed the decision of Austin J in Hall v Sherman (2002) 40 ACSR 40 where the same question arose but in the context of s 431 of the Act. That section relevantly provides that a controller of property of a corporation is entitled to inspect "any books of the corporation that relate to that property". The relevant question for Austin J was whether the expression "books of the corporation" included not only books which were owned by the corporation but extended to books which were in the possession of the corporation at the time of the appointment of the Controller. Martin CJ noted the following at [7] to [9]: 7 Austin J followed the decision of Gobbo J in Re Jet Corporation of Australia Pty Ltd [1985] VR 716 and held that the expression 'books of the corporation' extended only to books which belonged to the company. Accordingly, his Honour concluded that books which did not belong to the company in question, but which were in its possession at the time of the appointment of the controller were outside the scope of s 431 of the Corporations Act. 8 Of course, those cases concern access to books by a controller of property. Section 247A is concerned with access to books by a member of a company or registered managed investment scheme. However, I can see no reason why the expression 'books of' would be given a broader meaning in the former context than in the latter. The decisions to which I have referred have stood unchallenged for some time. Although I am not, of course, bound to follow those decisions, uniformity of decision in the interpretation of uniform national legislation is an important consideration (Australian Securities Commission v Marlborough Gold Mines Ltd (1993) 177 CLR 485, 492), as is judicial comity. I would therefore only depart from those decisions if I was satisfied that they were wrong. I am not so satisfied. 9 Accordingly, in the present case the question becomes whether the draft or drafts of the statements of the evidence to be given by Mr Eggers 'belong' to the Summit parties in the sense that they are the property of those parties. 29 There has been no further consideration of this issue in the context of s 247A and the decisions referred to by Martin CJ still stand. I can see no reason to depart from the decision of Martin CJ. Thus the question for me is whether the documents called for in categories 7, 8 and 10 to 12 belong to NBL in the sense that they are the property of NBL. This is of course a question of fact and cannot be addressed simply by the amendment to these categories proposed by NBL. Similarly, it is not merely a question of possession of the documents as was submitted by counsel for Mr Engel. In many cases a party will need to show something beyond possession to establish that a document belongs to it. For example, there may need to be evidence and an examination of the purpose for which a document was provided to the relevant company. 30 There is only limited evidence provided by NBL in relation to categories 7, 8 and 10 to 12. 31 Mr Wheaton deposes at [28(f)] of his affidavit that in relation to categories 7 and 8 (and category 9 which is not in issue) NBL has a suite of agreements entitled shareholders agreement, call option deed, share sale and purchase and asset sale agreement. Mr Wheaton does not suggest that these documents do not belong to NBL. To the contrary, Mr Wheaton goes on to depose that: These documents are subject to confidentiality provisions that require the Defendant to keep them confidential unless disclosure is required to be made pursuant to a law. As a result, if the Plaintiff is entitled to a Court order for production and with an appropriate confidentiality regime in place, the Defendant does not object to producing these documents. 32 NBL must be a party to these documents given that it is bound to keep then confidential. In light of Mr Wheaton's evidence, there can be no issue that the documents described by Mr Wheaton at [28(f)] of his affidavit belong to NBL and ought be provided for inspection. 33 In relation to categories 10 to 12, Mr Wheaton deposes at [28(g)] of his affidavit that Mr Engel and NBL are not members or shareholders of NBDA, JSKS Enterprises, Energreen or Petro National and that NBL does not have an entitlement to the documents sought by Mr Engel. 34 No further evidence is provided. It is not clear whether there are documents in NBL's records, beyond those referred to by Mr Wheaton at [28(f)] of his affidavit, which respond to categories 7, 8 and 10 to 12, if so what they are and whether they belong (or do not belong) to NBL in the sense that they are (or are not) the property of NBL. By way of example I note that the loan from Energreen to NBDA is included in the FY14 Report. Presumably, various documents were provided to NBL to enable it to include the details of the loan in its consolidated financial report. While without further evidence no conclusion can be drawn, if that is the case, it is difficult to see how those documents would not belong to NBL. 35 If it is the case, as counsel for NBL submitted it may be, that some of the documents caught by these categories as currently framed would be caught by category 15 which, in summary, calls for NBL's board papers then again, without forming a concluded view, it seems to me that such documents are likely to be books of NBL in the sense that the documents belong to NBL. It is difficult to see a situation where a parent company receives material from its subsidiary for inclusion in board packs where ownership in the material so provided would not pass to the parent and become a part of its records. 36 I propose to leave categories 7, 8 and 10 to 12 in the terms in which they appear in the Schedule. If NBL has documents beyond those identified by Mr Wheaton which respond to categories 7, 8 and 10 to 12 which belong to NBL they should be provided to Mr Engel for inspection. If there is a dispute or any uncertainty about whether particular documents falling within these categories belong to NBL and whether they ought to be produced for inspection the parties may exercise their liberty to restore the matter to the list for further orders or directions.

Category 15 37 Category 15 calls for "all board papers, agendas for board meetings and board packs of the defendant, NBG or NBDA for the Period". Two issues arise in relation to this category: first, its general breadth; and second, whether there should be a carve out for material which may be subject to a claim for legal professional privilege. 38 In relation to the first issue, counsel for Mr Engel described this category as the "widest of the categories" and submitted that its width was driven by the complicated web of transactions which Mr Engel considers may have been designed to reduce the value of his shareholding in favour of the majority shareholder. 39 Mr Engel relies on Yara Australia Pty Ltd v Burrup Holdings Ltd (2010) 80 ACSR 641. At [122] Barker J, notes the respondent's submission relying on Re Claremont Petroleum NL (No 2) [1990] 2 Qd R 310 at 314 to the effect that s 247A is not intended to be a process as wide ranging as discovery so that, as a general rule, inspection will be confined to the results of decisions of directors rather than all documents, such as board papers leading to decisions. Having done that, his Honour goes on to say that "while this might be generally so, in my view the facts of each case will finally dictate what documents might be appropriately accessed under this provision". 40 Mr Engel seeks to inspect all of the board papers for the relevant period so as to have full visibility of the board's actions. Counsel for Mr Engel submitted that confining the category by reference to the specific transactions which Mr Engel wishes to investigate may have the effect that Mr Engel will not have that visibility. For example if a transaction not known to Mr Engel was the impetus for one of the transactions Mr Engel wishes to investigate, that would not be apparent if the category was limited. 41 In my view the facts of this case do not favour the terms of category 15 as included in the Schedule. The evidence discloses concern about specified transactions. Mr Engel's purpose in seeking inspection is to investigate those transactions. The categories sought should not go beyond those transactions. Once again adopting the approach in Re Style, in my view the category should be limited to the transactions about which Mr Engel is concerned. NBL has proposed an amendment to category 15 which seeks to do that. Subject to some minor changes, I propose to adopt that amendment. 42 Before leaving this issue, I note that Counsel for Mr Engel submitted that amending category 15 to limit it to particular transactions may cause it to be oppressive because NBL will have to search for documents meeting specific descriptions, rather than producing all of the board papers over the Period. NBL has in fact proposed the amendment. It makes no such complaint. Nor do I accept the submission. An applicant seeking to rely on s 247A(1) of the Act must meet the threshold test set out in the section and, if it does, the books of the company which are sought to be inspected should relate to the applicant's purpose. 43 Counsel for NBL submits that some of the documents caught by category 15 may be subject to a claim for legal professional privilege, that privilege is not abrogated by s 247A and that there does not appear to be any common interest between NBL and Mr Engel which would preserve the privilege in those documents if they were disclosed. Accordingly, the category should include a carve out for documents subject to such a claim. Counsel for Mr Engel submits that a carve out is not warranted. NBL has not identified any specific documents which are subject to a claim for legal professional privilege. If there are such documents, they should be identified to Mr Engel's solicitors by the provision of a schedule describing the documents. 44 I accept NBL's submission that the terms of s 247A do not abrogate legal professional privilege: see Hanks v Admiralty Resources NL (No 2) [2011] FCA 1464 at [20]. There is no evidence before me as to whether there are in fact documents which are caught by category 15 which would be subject to a claim for legal professional privilege, and if so, the nature of those documents. In the circumstances, while I am of the view that such documents need not be made available for inspection they should be identified to Mr Engel or his solicitors by way of a list setting out a brief description of them. If any issues or a dispute arises and Mr Engel wishes to challenge a claim for privilege the parties may exercise their liberty to restore the matter to the list for further orders or directions.

Confidentiality 45 It was submitted on behalf of NBL that in making an order under s 247A(1) of the Act it is appropriate for the Court to provide for a confidentiality regime to be imposed on Mr Engel and any other person authorised to inspect NBL's books. The form of confidentiality order suggested by NBL is modelled on an order made by Robertson J in London City Equities Ltd v Penrice Soda Holdings Ltd (No 2) [2011] FCA 822 (London City Equities) and is in the following terms: The plaintiff and other persons authorised to inspect and make copies of books of the defendant …: (a) must not communicate or disclose information obtained as a result of the inspection or copying of such books to any persons except for the purpose of investigating and determining whether proceedings should be commenced by the plaintiff against the defendant or directors of the defendant (or both) and for prosecuting those proceedings. 46 The proposed order for confidentiality is based on order 2.1 in London City Equities. In oral submissions, counsel for NBL noted that NBL was content to extend the form of the confidentiality order to incorporate orders based on orders 2.2 and 2.3 made in London City Equities to deal with the potential for an action on behalf of the company. Counsel for NBL submitted that s 247B of the Act gives the Court power to make orders in the terms proposed by NBL and expressly contemplates such orders being made. 47 Against a submission on behalf of Mr Engel that there was no evidence of why the material is confidential and ought be protected, counsel for NBL noted that evidence of confidentiality was provided by Mr Wheaton at [23] and [26] of his affidavit. There Mr Wheaton describes a particular agreement as "commercial in confidence" and more generally expresses a concern that the information requested in the Schedule is "confidential and commercial in confidence company material that may be provided to third parties if no confidentiality regime is agreed by" Mr Engel. It was also submitted on behalf of NBL that the nature of the categories themselves suggest that confidential material would be the subject of any order for inspection. 48 Section 247C of the Act prevents third parties authorised to inspect the books of NBL on behalf of Mr Engel from disclosing any information obtained during the inspection to persons other than those nominated in the section. In my view no further protection is needed in relation to those third parties. That then leaves the plaintiff, Mr Engel. The section in its terms does not impose any limitation on the disclosure or use an applicant, as opposed to a third party, can make of that information. In Knightswood Nominees Pty Ltd v Sherwin Pastoral Company Ltd (1989) 15 ACLR 151 at 158 Brooking J said the following when considering whether an order limiting the use of information should be made: In Intercapital Holdings Ltd v MEH Ltd (1988) 13 ACLR 595; 6 ACLC 1068 I imposed a restriction because one was suggested by the applicant and embraced by the respondent, but in subsequent proceedings I came to doubt the wisdom of the initial restriction. I said in making the initial order in that case that I did not wish it to be thought that a practice was developing under which restrictions on use formed part of the usual order. Each case requires separate consideration. In the present case I am of the view that no order should be made restricting the use that may be made by the plaintiff of the information disclosed to it. In Re Style, Goldberg J did not consider it necessary to impose a specific confidentiality regime on the applicant or his nominated third parties in relation to the orders for inspection he proposed to make. In London City Equities, the confidentiality orders were made by the Court following a consideration of written submission on issues on which the parties could not agree. Robertson J's judgment does not disclose the nature of those issues. 49 It was submitted on behalf of Mr Engel that he may wish to discuss the material with other minority shareholders and that, while those shareholders could bring similar applications to that brought by Mr Engel pursuant to s 247A(1), that would not be a good use of resources. There is no evidence before me about such disclosure and what it might involve. There is some evidence given on behalf of NBL in relation to the confidentiality of the material which will be available for inspection. 50 On balance, I am of the view that an order should be made in the terms proposed by NBL with the addition of orders which will accommodate the potential for proceedings to be commenced in the name of NBL. The proposed orders will not prevent Mr Engel from investigating the matters of concern to him and will address NBL's concern to maintain confidentiality in the material. I will make the orders "until further order". Should either party wish to apply to vary them for a particular reason, they can exercise liberty to apply.

Costs 51 There are two areas of costs in issue: costs of the application and the costs of compliance with any orders of inspection made by the Court. I will deal with each in turn.

Costs of the application 52 Mr Engel seeks his costs of the application. His position is that reasonable requests were made for access to the categories of documents that are included in the Schedule prior to the commencement of proceedings and they were declined and, even after commencement of proceedings, NBL has not consented to what was described by counsel for Mr Engel as a "reasonable version" of the orders sought. 53 NBL submits that the appropriate order is for each party to pay its own costs of the proceedings on the basis that NBL took a reasonable approach to the application, it was appropriate for it to take steps to protect the confidentiality of its documents and, given the nature of some of the documents, NBL would be in breach of their terms if they were to provide them without a court order or other protection. 54 Section 43 of the Federal Court of Australia Act 1976 (Cth) gives the Court a wide discretion to award costs. Mr Engel sought access to specified documents through his solicitors by letter dated 6 May 2015. That request was declined by letter dated 26 May 2015. There was no further correspondence between the parties and these proceedings were commenced by Mr Engel on 30 July 2015. While agreement was reached on some issues and the parties narrowed the issues between them, they remained apart on some issues. Ultimately in order to obtain inspection Mr Engel was required to commence and pursue proceedings. In the end result, Mr Engel has met the threshold requirement for an order pursuant to s 247A(1) of the Act and has been relatively successful in maintaining the categories which he originally sought in the Schedule. In the circumstances I will order that NBL is to pay Mr Engel's costs of the application.

Costs of compliance 55 NBL seeks an order that Mr Engel pay its reasonable costs of complying with any orders made by the Court. Counsel for NBL submitted that Mr Engel is a small shareholder with less than half a percent of the issued shares of NBL and that the appropriate balance between Mr Engel's interests and those of the other shareholders in NBL is that Mr Engel should bear the cost of compliance with any orders but that if proceedings are commenced he can claim those costs in the proceedings. Counsel for NBL drew an analogy with preliminary discovery and referred me to the decision in ObjectiVision Pty Ltd v Visionsearch Pty Ltd (No. 3) [2015] FCA 304 in which Perry J ordered that the applicant for orders for preliminary discovery pay the respondent's costs of complying with the orders. 56 I do not think that an application for inspection of a company's books under s 247A of the Act is analogous to an application for preliminary discovery. Such an application can only be made by a member of a company or a registered managed investment scheme or a person entitled to bring proceedings in the name of the company under s 236 of the Act that is, someone who has an interest in and/or is connected to the company. Applications for preliminary discovery can be made by any party, including strangers to a respondent. The Act does not contemplate that the applicant for inspection will be required to pay the company's costs of compliance with any orders that are made. Had the legislature wished to impose that burden on the applicant it could have done so: see for example ss 249F(1), 252D(1), 139(1)(b) and 173(3)(b) of the Act. It seems to me that to require a successful applicant to pay the costs of compliance with an order made under s 247A would be inconsistent with the purpose of the section which is to enable access and inspection by a member of a company to its books, provided that the member meets the threshold requirements of the section. I do not propose to make an order requiring Mr Engel to pay NBL's costs of compliance with the orders for inspection.

Conclusion 57 I will make orders pursuant to s 247A(1) in accordance with these reasons. I certify that the preceding fifty-seven (57) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Markovic.