Hammond v Quayeyeware Pty Ltd, in the matter of Quayeyeware Pty Ltd

1. By consent, the proceeding is dismissed.
2. The costs of the plaintiff's interlocutory application filed on 28 August 2019 are costs in the proceeding.
3. The defendant shall pay the plaintiffs' costs of the proceeding. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

STEWART J: 1 In May 2019, the plaintiffs commenced this proceeding. In their capacity as directors of the defendant, and in the case of the first plaintiff also as a shareholder, they sought access to documents of the defendant. 2 Both at general law and by various statutory provisions, directors have broad rights of access to company documents. Historically, the general law has recognised the need for directors to have access to a variety of information of the company and not only to financial records. 3 Initially, the Companies Acts did not provide an express right of access. It was understood that the common law had already provided the right. Later, statutes conferred rights of access to directors. Of this right, Austin J held in Fox v Gadsden Pty Ltd [2003] NSWSC 748; 46 ACSR 713 at [23]: It would be difficult for the court to over-emphasise the importance of the director's statutory law rights of access to corporate information. They are the foundation of the system of corporate [governance] as it exists in Australia today. Directors cannot be expected to carry out any of their substantial responsibilities, including their fiduciary duties and their duties to attend to the solvency of the company and its general management, unless they can be sure of having full and unfettered access to the documents of the company. It is not appropriate for their fellow directors to offer to provide the requesting director with particular documents if that director requests those documents by name. What should happen, when documents are demanded by a director, is that the gate is opened wide and the director has full and unfettered access at all reasonable times. (Emphasis added.) 4 While statute law supplied an absolute right of access to corporate information, the general law right was not absolute as it was subject to certain exceptions. In a decision published prior to the existence of the statutory right, Edman v Ross (1922) 22 SR(NSW) 351 at 360-362, Street CJ in Equity held: A director's right to inspect and take copies of documents belonging to his company is, I think, clear. In Burn v The London and South Wales Coal Company and Risca Investment Company (7 TLR 118), North J pointed out that he had this right and not at meetings only. He pointed out the inconvenience that would arise if it were otherwise, and he said that the very object of the director having access to such documents was that he might be prepared to act at meetings. He observed also that it was necessary that confidence should be reposed in a director, that he would use his knowledge for the benefit of the company, and that if a company had not confidence in its directors its proper course was to remove them. The right to inspect documents and, if necessary, to take copies of them is essential to the proper performance of a director's duties, and, though I am not prepared to say that the Court might not restrain him in the exercise of this right if satisfied affirmatively that his intention was to abuse the confidence reposed in him and materially to injure the company, it is true nevertheless, that its exercise is, generally speaking, not a matter of discretion with the Court and that he cannot be called upon to furnish his reasons before being allowed to exercise it. In the absence of clear proof to the contrary the Court must assume that he will exercise it for the benefit of his company. A director is not required to be a skilled accountant, and it is not expected of him that he should keep the books of account himself. He is entitled to leave the details of management to other officers and he is protected from responsibility if he has no reason for suspecting the integrity and competence of those whom he employs. If, however, for his own information and in order to satisfy himself that things are as they should be, he wishes to inspect matters for himself he is within his rights, and if he can do this and take copies which he may afterwards submit for the consideration of a skilled accountant there is no reason why he should not employ a proper agent to make the inspection and examination for him. 5 The modern authorities have not abandoned the general law right. It remains as vibrant as ever: e.g. Molomby v Whitehead [1985] FCA 421; 7 FCR 541 at 550-552, 554 per Beaumont J. 6 Turning now to the principles governing this Court's jurisdiction and discretion to award costs, where a proceeding is not heard and determined on its merits a court may award costs dependent upon the circumstances. As explained by McHugh J in Re The Minister for Immigration and Ethnic Affairs; Ex Parte Lai Qin [1997] HCA 3; 186 CLR 622 at 624-625, (citations omitted): In an appropriate case, a court will make an order for costs even when there has been no hearing on the merits and the moving party no longer wishes to proceed with the action. The court cannot try a hypothetical action between the parties. To do so would burden the parties with the costs of a litigated action which by settlement or extra-curial action they had avoided. In some cases, however, the court may be able to conclude that one of the parties has acted so unreasonably that the other party should obtain the costs of the action. In administrative law matters, for example, it may appear that the defendant has acted unreasonably in exercising or refusing to exercise a power and that the plaintiff had no reasonable alternative but to commence a litigation… Moreover, in some cases a judge may feel confident that, although both parties have acted reasonably, one party was almost certain to have succeeded if the matter had been fully tried. 7 Similarly, in One.Tel Ltd v Deputy Commissioner of Taxation [2000] FCA 270; 101 FCR 548 Burchett J said at [6]: In my opinion, it is important to draw a distinction between cases in which one party, after litigating for some time, effectively surrenders to the other, and cases where some supervening event or settlement so removes or modifies the subject of the dispute that, although it could not be said that one side has simply won, no issue remains between the parties except that of costs. In the former type of case, there will commonly be lacking any basis for an exercise of the Court's discretion otherwise than by an award of costs to the successful party. 8 Because of a broader dispute between the shareholders of the company, the ability of the plaintiffs to access information of the company in their capacities as directors became restricted by the defendant in about March 2019. Solicitors acting for the plaintiffs then, in correspondence to the company, asserted their rights to information as directors and threatened legal action. The company took an uncompromising position and the ground was thus laid for the litigation that the plaintiffs then commenced. 9 In response, the defendant offered access to some financial information by way of access to a 'data room', but made that subject to confidentiality undertakings by the plaintiffs. That impeded their ability to seek professional advice in their roles as directors and to report to the shareholders who appointed them. That was contrary to the shareholders' agreement. Also, the other directors were not so restricted. Unsurprisingly, the plaintiffs were not satisfied with the access that had been offered. Before and after the offer of a data room for some financial information, the parties engaged in a drawn out process of negotiation and manoeuvring about access to information and documents. That included a mediation conducted by a Registrar of this Court that failed. It also involved the defendant at some point abandoning its requirement that the plaintiffs sign confidentiality undertakings and the plaintiffs committing to a list of categories of documents that they required. 10 Over a period of time information and documents were gradually provided until the point was reached when the plaintiffs did not press for anything further and the substance of the dispute was thus resolved. What was left was the question of costs. Each party sought that the other should pay its costs. 11 I am satisfied that the defendant should pay the plaintiffs' costs. The principal reasons are as follows. First, the plaintiffs were denied information that they were plainly entitled to and had to bring the proceedings to get the information - information that was ultimately provided. Secondly, even thereafter the defendant while offering some information, did so on the basis of requiring undertakings that were unreasonable and unjustified - a requirement that was subsequently abandoned. It also sought to restrict the type or nature of information that the plaintiffs could have, but that restriction was also later abandoned. Thirdly, no proper justification was offered for denying the plaintiffs the information. It was submitted that the defendant's stance must be understood in the context of the broader dispute between shareholders and the defendant's allegations in other proceedings that the plaintiffs or interests aligned with them were misusing company information. However, in the present proceeding the defendant never positively raised any such justification for restricting the plaintiffs' access. 12 The defendant did not seek to establish that the plaintiffs intended to abuse the confidence that is reposed in them as directors. The reality is that commercial partners may have a falling out and relationships may sour, but that is no basis to deny directors company information that they seek. The defendant says that the terms of relief sought by the plaintiffs were too broad and unspecified and hence impossible to fulfil. It says that once the plaintiffs furnished a list of actual documents or categories of documents that they sought, through a process of negotiation and refinement these documents were then provided. It says that the plaintiffs should thus pay its costs, that is, on the basis that the plaintiffs conducted their demand for documents unreasonably and that is what led to the delay and waste of costs. 13 In my view, that submission misses two points. One is that directors are not confined to asking for information only once and with reference to a closed list. A company is a living organisation. Directors can keep asking and they can keep changing what they ask for; the provision of one thing may lead to a legitimate request for something else. The other is that directors do not have to give reasons for why they want the information that they seek. They are ultimately responsible for the company including in certain circumstances by having personal liability imposed on them for the debts of the company. No doubt the managers of a company, including executive directors, can feel harassed and put upon by a director's requests for company information. No doubt they might feel that the requests are unjustified and that company resources should be better spent on the core business of the company, but they are not the arbiters of that. 14 The defendant also complains that the plaintiffs did not engage early enough or adequately with it in a constructive process of defining what they required and the manner in which they could access it. There may be some justification in the criticism in that it appears that some correspondence and offers were not constructively engaged with or quickly responded to. However, so long as the defendant took the position that the plaintiffs' requests were subject to its judgement, decision and discretion and that it had it within its power to fulfil or deny their requests, it is understandable that the plaintiffs pressed forward with the broad relief that they sought. 15 Finally, there are the costs of the plaintiffs' interlocutory application in which they sought an injunction against a directors' meeting pending the provision of information necessary for them to take a position on the resolution proposed for that meeting. The meeting was ultimately cancelled and the interlocutory application thus fell away. The costs were reserved. In my view, the issues with respect to the costs of the interlocutory application are too closely intertwined with the issues in the principal case to decide those costs separately. The meeting was brought on very quickly at a time when the parties were in dispute about the plaintiffs' access to company information. That included information that might have been relevant to the resolution that was proposed to be put to the meeting in question. 16 The ultimate resolution of that dispute was very substantially if not completely in the plaintiffs' favour. That bears on the appropriate costs order in the interlocutory application. In my view, the costs of the interlocutory application should be costs in the proceedings. I certify that the preceding sixteen (16) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Stewart.