Hawksford & Ors v Hawksford & Ors

Supreme Court of NSW|2005-12-08|Before: Palmer J

CITATION : Hawksford & Ors v Hawksford & Ors [2005] NSWSC 1316

CATCHWORDS : CORPORATIONS - DIRECTORS - ACCESS TO RECORDS - Terms upon which a director is to be given access to company records for inspection.

LEGISLATION CITED : Corporations Act 2001 (Cth) - s.198F, s.247A, s.290, s.299, s.1324

Michael Jeffrey Hawksford - First Plaintiff Calm Family Investment Pty Ltd - Second Plaintiff Heads and Threads Pty Ltd - Third Plaintiff PARTIES : Brett Paul Hawksford - First Defendant BHM Management Pty Ltd - Second Defendant Bremick Pty Ltd - Third Defendant BMB Investments Pty Ltd - Fourth Defendant

P.M. Wood - Plaintiffs COUNSEL : C.J. Bevan, A.C.M. Iuliano - Defendants

Clayton Utz - Plaintiffs SOLICITORS : Evangelos Patakas - Defendants

1 This is an application by the First Defendant, Brett Paul Hawksford, to inspect the financial books and records of Bremick Pty Ltd and BMB Investments Pty Ltd. The Applicant is a director of those companies. The First Respondent, Michael Jeffrey Hawksford, is also a director of the companies and is the Applicant's brother. The application is made pursuant to s.198F, s.247A, s.299 and s.1324 of the Corporations Act 2001 (Cth). It is clear that this application is part of a bitter litigious struggle between the brothers. 2 The Defendants resisted the application. There has been extensive correspondence between the parties' solicitors and affidavits and submissions have been served on both sides. The application was listed for two days' hearing commencing today. 3 Two days ago the Respondents to the application had the matter listed before me to seek an order that the whole of the proceedings be referred to mediation. The Applicant resisted that suggestion, at least until inspection of the companies' financial records had been given. 4 Mr Wood of Counsel, who appears for the Plaintiffs, stated that the Respondents to the application would no longer oppose inspection. However, the parties could not agree as to the terms upon which access and inspection should take place. 5 When the matter came before me this morning, the parties still could not agree on the terms upon which access and inspection of the records of the companies should take place. Each of them proffered a different set of Short Minutes of Order. The differences between the two sets of orders are, for the most part, insignificant. They should have been capable of resolution, had the parties and their advisers been prepared to co-operate sensibly in achieving an outcome which was both inevitable and obvious. However, it is clear that the parties are not going to be able to agree about anything at all, no matter how inconsequential. 6 The Court will not permit the parties to use its resources regardless of the expense and time of the Court occupied in determining disputes which bear no proportionality to the significance of the issues dividing the parties. Litigation must be conducted with appropriate regard to efficiency, economy and proportionality, bearing in mind that other litigants are also entitled to the limited resources of the Court. 7 The Applicant is clearly entitled to access and to inspect the records of the companies, but in a way that is reasonable in all of the circumstances, and also bearing in mind the context in which the access and inspection is being carried out. 8 I have indicated to the parties by reference to the two sets of Short Minutes proffered, the orders that I have in mind making. Each of the parties' Counsel has then addressed, voicing their objections or suggestions as to the appropriateness of the orders which I have suggested. There are, I think, only a few matters that really require discussion. The first is whether some order should be made dealing with an issue of legal professional privilege. 9 The First Respondent, Michael Hawksford, seeks an order to the effect that the financial records and books of the companies, which are subject to access and inspection orders, should exclude documents created for the dominant purpose of a lawyer providing legal advice to the companies in relation to the subject matter of specified proceedings. 10 On the other hand, the Applicant, Brett Hawksford, seeks an order that such documents be the subject of access and inspection. There has been some debate between the parties on a prior occasion as to whether legal advice which has been procured in relation to the subject proceedings is legal advice procured by the company. The issue arises because there is a dispute as to whether the companies could properly instruct any legal adviser to act on their behalf, when such instructions could only be given by a board comprising the two brothers who were deadlocked on the issue. 11 Because of these difficulties, and because there is a distinct possibility that any decision about the question of legal professional privilege which arises as a result of access and inspection orders will turn upon the particular facts and circumstances in which particular documents were procured, I do not think it is advisable - in fact I think it is highly inadvisable - that questions of legal professional privilege should be determined now and in the absence of particular facts and circumstances. It may be that there will be a contest between the parties as to whether a particular document is a document of the company, or a document of Michael Hawksford personally. It seems to me that if there is to be such a contest, then there should be a decision founded upon the particular facts found. 12 As I have said in the course of discussion with Counsel, it may well be in any event that arguments founded upon strict classifications of legal professional privilege will be somewhat sterile and academic in the present context. 13 There has been debate before Campbell J about legal professional privilege pertaining to particular documents in the circumstances to which I have earlier adverted. However, that debate occurred in the context of a dispute as to the scope of discovery. The present application is concerned not with discovery, but with a statutory right for inspection of a company's documents. 14 Principal amongst the sections relied upon by Brett Hawksford is CA s.290 which confers on a director a right of access to the financial records of the company. Under that section the Court may also authorise a person to inspect the financial records of the company on the directors' behalf. However, s.290(4) empowers the Court to 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 the records may make of information obtained during the inspection;

b) an order limiting the right of a person who inspects the records to make copies in accordance with subsection (3)." 15 It is clear that the power of the Court conferred by that discretion is a wide one, not limited to the specific circumstances referred to in s.290(4)(a) and (b), and is exercisable by the Court having regard to the overall justice of the case. As a general rule, I would think it unlikely that the Court would permit a director who is engaged directly in litigation against a company to have access under CA s.290 to documents otherwise subject to legal professional privilege arising in the course of that litigation so that the director may, in effect, by recourse to the section become privy to the most privileged communications between the company and its legal advisers regarding the conduct of the case against him. However, I do not need to make a decision on that question today, for the reasons which I have given. 16 In my view, it is not appropriate to make any order relating to privilege in the orders which I am about to make. If and when a contest arises between the parties as to particular documents, that contest will have to be determined by the Court. In this regard, and also to cope with any other disputes that may arise between the parties, I will reserve liberty to apply. 17 The next question that needs to be discussed is whether there should be exempted from the access to be provided those documents which identify the names and locations of suppliers of goods to Bremick. That is an exemption which Michael Hawksford seeks. He says that the information sought is not relevant to any issue in the proceedings between himself and his brother. He says that the information is highly confidential and that there is a real likelihood that Brett Hawksford will misuse that information, if it is given to him, for the purposes of damaging the companies. 18 Mr Bevan says that the information is necessary because Brett Hawksford wishes to vouch the accuracy of the financial records and the accounts of Bremick and in order to do that he needs to be able to verify the truthfulness of invoices by communicating with the particular suppliers. 19 It seems to me that the right to inspect these particular records would be within the rights of inspection conferred on Brett Hawksford by CA s.290(1). The fact that they may or may not be relevant to proceedings could be an issue arising if the contest were solely one as to Brett's rights under s. 198 F. However, as I have said, the application is also made under s.290. The information therefore is within the scope of the information to which Brett Hawksford, as a director, is entitled to have access. 20 However, I accept the contention that this information is highly confidential. I would impose, as a condition of Brett's rights to inspect documents identifying names and locations of suppliers of goods to Bremick, that he gives an undertaking to the Court that he will keep that information confidential and will not use it for any purpose other than the conduct of the proceedings in which he is engaged against Michael and the other Defendants. The undertaking should also include an undertaking that he will not disclose the information to any other person except those advising him in this litigation. 21 That brings me to the next topic upon which there has been a dispute, that is, whether confidentiality orders should be exacted from the various professional advisers whom Brett Hawksford will engage in order to assist him with access and inspection of the various records of the companies. 22 Brett Hawksford opposes the exaction of any such confidentiality undertakings or the imposition of any such confidentiality orders on the basis that they are unduly onerous to the professional advisers. I do not agree with that submission. The terms of the confidentiality undertakings are in quite usual terms and such undertakings or orders are frequently given or made in commercial litigation in this Court. I do not think that any professional experienced in assisting in litigation would have any difficulty in giving the undertakings sought or complying with them. 23 The final matter for debate is whether certain access and security codes should be included in the financial records of the companies to which Brett Hawksford is to have access. It is explained that the particular access or log-in security codes for which Michael Hawksford seeks exemption are not necessary for access to what I might call the day-to-day information relating to the companies' affairs. They are codes reserved for administration or are necessary to ensure that the information on computers within the companies cannot be interfered with. I am prepared to accept that explanation at this stage. 24 The orders which I will make will require the companies and those associated with them to give access and inspection in the terms set out in the orders. The orders also will require the companies to do all things necessary to ensure that that access and inspection is afforded. Those orders necessarily carry with them the requirement that no undue interference or impediment is put in the way of those seeking to exercise the access rights imposed in the orders. If it transpires that the absence of any security or access codes impedes the reasonable access rights to be exercised by Brett Hawksford or the advisers on his behalf, then the matter will be brought back to Court and the Court will make the appropriate orders and directions. However, I would earnestly hope that such an application will not be necessary. 25 I will now pronounce the orders which I will make. I have indicated the terms of the orders in the course of discussion with Counsel but, for the sake of clarity, I think I should state them again. The orders of the Court are as follows. 26 The First Defendant, Brett Paul Hawksford ("Brett") is authorised to inspect the books as defined in s.9 of the Corporations Act 2001 (Cth) ("the Act") of the Third Defendant, Bremick Pty Ltd ("Bremick"), and the Fourth Defendant, BMB Investments Pty Ltd ("BMB"), at the business premises of Bremick and BMB in the manner specified in paragraphs 33 and 34 ("Brett Hawksford's book access rights"). 27 The solicitors, counsel, accountants and financial advisers acting for Brett (hereinafter collectively "the Professional Advisers") are authorised to inspect the books (as defined in s.9 of the Act) of Bremick and BMB at the business premises of Bremick and BMB in the manner specified in paragraphs 33 and 34 ("the Professional Advisers' book access rights"). 28 Brett is authorised to inspect the financial records (as defined in s.9 of the Act) of Bremick and BMB at the business premises of Bremick and BMB in the manner specified in paragraphs 33 and 34 ("Brett Hawksford's financial records access rights"). 29 The Professional Advisers are authorised to inspect the financial records (as defined in s.9 of the Act) of Bremick and BMB at the business premises of Bremick and BMB in the manner specified in paragraphs 33 and 34 ("the Professional Advisers' financial records access rights"). 30 The Third and Fourth Defendants shall do all things necessary to give effect to the orders and authorisation in paragraphs 26 to 29.

31 The financial records and books defined for the purposes of these orders in s 9 of the Corporations Act shall exclude:

a) documents recording the access or login security codes or administrator rights referred to in paragraph 11 of the affidavit of Mark Andrew Macourt sworn 5 October 2005;

b) documents recording the access or login security codes or passwords of individual employees of Bremick. 32 The authorisations and inspections referred to in paragraphs 26 to 29, insofar as they relate to documents which identify the names and locations of Bremick's suppliers, are subject to Brett Hawksford undertaking to the Court:

a) to keep the information in those documents confidential;

b) not to use that information for any purpose other than the conduct of the proceedings between Michael Hawksford, Brett Hawksford and the other Defendants; and

c) not to disclose that information to any person other than a Professional Adviser who has signed a written confidentiality undertaking in accordance with these Orders. 33 Each of the following, namely:

c) Brett Hawksford's financial records access rights; and

d) the Professional Advisers' financial records access rights

(hereinafter collectively referred to as "the Access Rights") shall be exercised, subject to the following conditions, whilst any of these proceedings or proceedings numbered 5399 of 2003 and 4348 of 2004 in this Division remain pending and unresolved awaiting final determination, namely:

e) notice of the intention to exercise the Access Rights and of the categories of documents of which inspection is sought shall be given by Brett Hawksford through his solicitors to Michael Hawksford's solicitors at least two business days before the Access Rights are to be exercised and the notice shall specify the time or times at which access is sought and the identity of the persons who will be exercising the Access Rights;

f) the Access Rights shall only be exercised by Brett Hawksford while he is accompanied by at least one of the Professional Advisers, although any one or more of the Professional Advisers shall be entitled to exercise the Access Rights without Brett Hawksford being personally present;

g) Brett Hawksford shall only use the information obtained in the exercise of the Access Rights for the purposes of carrying out his duties as a director or his rights as a shareholder of Bremick and BMB or for the purposes of conducting these proceedings and proceedings numbered 5399 of 2003 and 4348 of 2005 in this Division;

h) the Access Rights shall be exercised in accordance with the notice referred to in paragraph 33(e) between the hours of 9am and until 5pm from Monday to Friday (not including public holidays) and at the business premises of Bremick and BMB;

i) there shall be a limit of three Professional Advisers who may accompany Brett Hawksford whilst exercising the Access Rights or who shall be entitled to exercise the Access Rights without him being personally present;

j) Brett Hawksford shall cause his solicitors to prepare a list of the categories of documents (being categories which are defined by reference to the general nature of the documents and the financial year in which the documents in that category are dated where the documents concerned are dated) constituting the books and financial records which have been copied in the exercise of the Access Rights and shall cause that list to be maintained by his solicitors as a current list (either electronically or in hard copy) by preparing it and then updating it within twenty-eight days of each occasion on which the Access Rights are exercised ("the list of copied documents");

k) Brett Hawksford shall cause his solicitors to make the list of copied documents available to Michael Hawksford's solicitors within seven (7) days of a request for a copy of it being received from those solicitors; 34 Each of the following, namely:

c) Brett Hawksford's financial records access rights; and

d) the Professional Advisers' financial records access rights,

shall include the right to copy books and financial records (as defined in s.9 of the Act, and includes copying by means of both photocopying and copying electronically onto diskettes or CD roms and by means of copying of data onto another computer system's hard drive by electronic transmission, and this copying right may be exercised using the photocopying, laser printing and computer storage, retrieval and processing facilities of Bremick at the premises of Bremick and BMB. 35 The right of any Professional Adviser to inspect any books and records pursuant to these orders shall be subject to that Professional Adviser first providing to the solicitors for Michael Hawksford a signed written undertaking in favour of Bremick:

a) acknowledging that the financial records or books contain confidential commercial information owned by Bremick, which is of value to it, and the unauthorised disclosure or misuse of which could potentially substantially harm Bremick's commercial interests; and

b) that the nominee may not use or disclose the information in the documents for any purpose other than advising the First Defendant about discharging his duties as a director of Bremick or his duties as a director of BMB or his conduct of these legal proceedings or proceedings 4348 of 2004. 36 The Court notes the following undertaking of the First Plaintiff to the First Defendant, namely that the First Plaintiff will not exercise any of his rights as the first named or joint holder of the parcel of 27 ordinary shares in BMB held in the joint names of the First Plaintiff and the First Defendant under Article 6 of BMB's constitution until the earlier of the determination of these Supreme Court proceedings 3487 of 2005 or the convening of an Annual General Meeting of BMB or the convening of an Annual General Meeting of Bremick or further order. 37 Each party will have liberty to apply to the Corporations List Judge on two days' notice. Costs

38 Mr Wood of Counsel, who appears for Michael Hawksford, submits that costs of this application should be costs in the cause in the main proceedings in which the parties are engaged, or, alternatively, that each party should bear his or its respective costs. 39 Mr Bevan says that the costs of the application up to and including 25 November 2005 should be paid by Michael Hawksford and the costs thereafter, or at least from a time sufficient to consider the offer contained in the Clayton Utz letter of 25 November 2005, should be borne by the parties, that is, there should be no order for costs thereafter. 40 I think that the order sought by Mr Bevan is the order which should be made. It seems to me clear that there was a contest between the parties as to whether Brett Hawksford was entitled to any relief under the various sections of the Corporations Act upon which he now relies. There is correspondence between the parties in which the statutory entitlement of Brett was asserted by his solicitors. There was no satisfactory response to that assertion. The commencement of the proceedings was justified, in my view. The submissions filed on behalf of Michael show a preparedness to oppose the granting of any relief under the various sections relied upon by Brett. 41 The letter sent by Clayton Utz on 25 November 2005, however, makes it clear that Michael was prepared to allow access upon certain terms. It is true that the terms of the orders as propounded by Clayton Utz in 25 November letter have not been reflected in the orders which I have made in absolute and unchanged terms. However, there is an acknowledgement in the letter of 25 November that access will be afforded subject only to reasonable protections and the imposition of reasonable terms. 42 I think that from 25 November onwards, the parties have been equally at fault in failing to agree sensibly upon a rational and commonsense way of implementing Brett's rights of access and inspection under the Act. 43 The orders of the Court as to costs are that the Applicant's costs, that is, the costs of Brett Paul Hawksford, of the Third Interlocutory Application up to and including 25 November 2005 will be paid by Michael Jeffrey Hawksford. There will be no order as to costs in respect of the application insofar as any such further costs were incurred after that date, each party being left to bear his own costs respectively. 44 Exhibits may be returned.

oOo -

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