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[2011] NSWSC 1552
Supreme Court of NSW
2011-12-12
Ball J, Ms J
Original judgment source is linked above.
Introduction 1By an interlocutory process filed on 7 December 2011, the first defendant, TheChairman1 Pty Ltd ( C1 ), seeks orders that the plaintiff, Lenark Pty Limited, gives discovery of documents which are in the possession or custody of Industrial Partners Holdings Pty Ltd ( Industrial Partners ) or its wholly owned subsidiary, Industrial Partners Pty Ltd ( IPPL ), on the basis that those documents are within the control of Lenark. The control is said to arise from a right of access given by a Unitholders Agreement to which Lenark and Industrial Partners are parties.
Background 2Lenark holds 14.41 percent of the issued shares of C1. The sole director and shareholder of Lenark is Ms Kimberly Chisholm, who has authorised her husband, Mr James Chisholm, to operate the company on her behalf. 3In these proceedings, Lenark alleges that it has been oppressed by certain directors and shareholders of C1, who are parties to the proceedings, in connection with two transactions. The details of the two transactions are not important to the present application. It is sufficient to observe that Mr Chisholm was a director of C1 at the time of the transactions and that it is alleged that an aspect of the oppressive conduct was that he was excluded from participating in the decisions that led to those transactions. 4One of the defences raised by C1 to that allegation is that Mr Chisholm incorporated Industrial Partners, that Lenark is a shareholder in that company, that that company competes with C1 and that Mr Chisholm, by causing Industrial Partners to engage in certain competitive conduct, acted contrary to the interests of C1 and in breach of his duties as a director of C1. 5Discovery in this matter has proceeded by way of categories. Categories 14, 18 and 37 are relevant to the current application. Those categories are in the following terms: ... 14. Documents in the period 24 October 2009 to 30 September 2010 relating to: the establishment, incorporation or launch (including timing of the 'launch' on 1 March 2010) of Industrial Partners; the business plan, business model or objectives of Industrial Partners; clients or potential clients of Industrial Partners; the Independent Contractor Agreement dated 6 November 2009 and Services to be provided by Mr Chisholm or Left Brain to Industrial Partners pursuant to that agreement. ... 18. Documents evidencing or recording consideration of or communications in the period 24 October 2009 to 30 September 2010 relating to investment by Industrial Partners or any of its clients in labour hire, mining services, and the mining and resources sectors (including but not limited to oil, gas, iron ore (including coal seam methane and underground coal gasification) and other mineral resources. ... 37. Documents evidencing or communications relating to competition or attempted competition by Industrial Partners with Chairmen 1 in 2010 including the matters specifically referred to by Mr Chisholm at the Chairmen 1 Board meeting o [sic] 24 June 2010, vis: a fertiliser listing; an iron ore listing; a listing of operating mines and near-term production tenements in Australia. ... 6There is no dispute that the documents sought by those categories are relevant to the defence raised by C1 arising out of the fact that Mr Chisholm is and was at the relevant time a director of Industrial Partners. 7Industrial Partners carries on business as trustee of a unit trust known as the Industrial Partners Unit Trust. The unitholders of that unit trust were originally Left Brain Strategies Pty Ltd (another company associated with Mr Chisholm), Mr Mark Thexton and Mr Craig Sanford. Under the terms of the unit trust, Left Brain Strategies held a 25.926 percent interest in the trust and Mr Thexton and Mr Sanford (as trustees for their respective family trusts) each held 37.037 percent. Left Brain Strategies' interest in the trust was transferred to Lenark, which is now a party to the relevant agreements. The relationship between the unitholders is governed by a Unitholders Agreement. Both Lenark and Mr Chisholm are parties to that agreement, as is Industrial Partners. 8Clause 13.1 of the Unitholders Agreement provides: Right to receive Subject to clause 13.2, each Unitholder is entitled to receive copies of any information relating to the Trustee, the Trust, the Subsidiaries or the Business that the Director nominated by that Unitholder receives ( Unitholder Information ). "Trust" is defined in cl 1.1 to be the Industrial Partners Unit Trust established by the trust deed. "Subsidiaries" is defined by reference to the definition of that word in the Corporations Act 2001 (Cth). It includes IPPL. "Business" is defined by reference to a business plan. The precise definition is not important to the current application. 9Clause 13.2 provides: Confidential Information The Unitholder Information is Confidential Information of the Trustee and each Unitholder must: (a) use the Unitholder Information solely in relation to and in the best interests of the Trust, the Subsidiaries and the Business; and (b) comply with the provisions of clause 24 in relation to the Unitholder Information. 10Clause 14.2 and 14.3 provide: 14.2 Access After giving at least 2 Business Days notice to the Trustee, each Unitholder or any authorised accountant, agent or employee of that Unitholder, must be given access, during the Trustee's normal business hours, to all the books, accounts, records and facilities of the Trustee, the Trust and the Subsidiaries for the purpose of inspecting, auditing and valuing the Trustee, the Trust and the Subsidiaries, making copies or any other reasonable purpose, at that Unitholder's cost in all respects. 14.3 Confidentiality The provisions of clause 24 apply to any information accessed by or disclosed to a Unitholder or its accountant, agent or employee under clause 14.2. 11Clause 24.1 relevantly provides: Subject to clauses 24.2 and 24.3, the Receiving Party must: (a) keep the Confidential Information confidential ... (b) ... (c) only use the Confidential Information for the purposes of performing, and to the extent necessary to perform, its obligations under this Agreement; ... "Confidential Information" is defined very broadly in cl 1.1 to include the terms of the agreement and "all other information belonging or relating to a Disclosing Party, or any Related Entity of that Disclosing Party, that is not generally available to the public at the time of disclosure ...". Clause 24.2 provides that the obligations of confidentiality under cl 24.1 do not apply relevantly to "any disclosure of Confidential Information by the Receiving Party that is necessary to comply with any court order ...", although certain obligations to give notice and to consult in relation to such a disclosure are imposed by the clause. Clause 24.3 relevantly provides that a Receiving Party may disclose Confidential Information "to any Related Entity, employee, agent, contractor, officer, professional adviser, banker, auditor or other consultant of the Receiving Party" on certain terms and conditions. Again, the precise terms and conditions are not relevant to the present application. 12By its interlocutory process, C1 seeks the following orders: 1 The plaintiff must provide discovery to the defendants of documents which: (a) fall within the categories of documents to be discovered by the plaintiff pursuant to order 1 made on 5 September 2011; (b) are books, accounts or records of Industrial Partners Holdings Pty Ltd, the Industrial Partners Unit Trust or Industrial Partners Pty Ltd (ACN 140 725 051); and (c) are in the custody or possession of Industrial Partners Holdings Pty Ltd or Industrial Partners Pty Ltd (ACN 140 725 051). 2 The plaintiff must provide discovery to the defendants of documents which: (a) fall within the categories of documents to be discovered by the plaintiff pursuant to order 1 made on 5 September 2011; (b) record information relating to Industrial Partners Holdings Pty Ltd, Industrial Partners Pty Ltd (ACN 140 725 051), the Industrial Partners Unit Trust or any business of the Industrial Partners Unit Trust; and (c) have been received by James Alexander Chisholm. 13Order 1 is said to correspond to Lenark's rights under cl 14.2 of the Unitholders Agreement. Order 2 is said to correspond to its rights under cl 13.1. 14There is no dispute between the parties concerning the applicable legal principles. Relevantly, Lenark must give discovery of the documents sought if it has, to use the words of Lord Diplock in Lonrho Ltd v Shell Petroleum Co Ltd [1980] 1 WLR 627 at 635: [A] presently enforceable legal right to obtain from whoever actually holds the document inspection of it without the need to obtain the consent of anyone else. ... See also Taylor v Santos Ltd [1998] 71 SASR 434 at 437-8. In the latter case, Doyle CJ suggested that the concept of power may extend to a case where there is not a presently enforceable legal right but where the court can say that the person in question has the actual immediate ability to inspect the document. However, there is no question of that extension applying in this case. Lenark has requested the documents from Industrial Partners and Industrial Partners has refused to provide them. Industrial Partners was represented at the hearing of the discovery application. Its position is that if any documents are to be provided by it, they should be the subject of a properly drafted subpoena, with the result that its costs of production will be recoverable under UCPR r 33.11.
Order 1 15So far as the first order is concerned, the parties agree that the issue is to be determined by asking whether the words "or any other reasonable purpose" in cl 14.2 of the Unitholders Agreement extend to cover a case where Lenark seeks access to the documents for the purpose of giving discovery in proceedings to which Lenark is a party. Mr Bender, who appeared for Lenark, submitted that they did not. In his submission, the words "any other reasonable purpose" should be confined to cases where Lenark seeks the documents for purposes associated with the administration of the trust and its business. He relied on a number of arguments in support of that proposition. First, he submitted that the specific purposes referred to in cl 14.2 ("inspecting, auditing and valuing the Trustee") are concerned with the administration of the trust and consequently the expression "any other reasonable purpose" should be confined in the same way. Second, he submitted that the confidentiality obligation imposed by cl 14.3 makes it clear that the parties could not have intended that access would be granted merely to comply with discovery obligations. Third, he submitted that the previous point was supported by cl 24.1(c), which provides that the party obtaining the information must "only use the Confidential Information for the purposes of performing, and to the extent necessary to perform, its obligations under this Agreement". Lastly, he submitted that there was a strong analogy with a shareholder's rights to inspect the books of a company under s 198F of the Corporations Act 2001 (Cth). That section does not provide a right of inspection solely for the purpose of giving discovery: Stern v Sekers [2010] NSWSC 59 at [255]. 16I do not accept Mr Bender's submissions. The rights of inspection must be considered in context. The unit trust in this case is essentially a quasi-partnership between three persons. It is unlikely in those circumstances that the parties would have intended any right of inspection to be construed narrowly. Clause 14.2 is oddly drafted because the phrase "or any other reasonable purpose" is separated by the other purposes referred to by the words "making copies". However, I do not think that that fact alters the sense of the clause. There is no reason to limit the "other purpose" except by reference to the express limitation contained in the clause - that is, that the purpose must be "reasonable". Mr Bender's interpretation involves reading into the clause words that are not there. Those words are not necessary to give the clause a reasonable or commercial operation. On the contrary, adding them in would produce odd results. For example, suppose that Industrial Partners had documents that would assist Lenark in proceedings that had been commenced against it or that would assist it in borrowing money from a bank. It is hard to see why Lenark would not be entitled to obtain those documents for those purposes. Yet neither of those purposes could be said to be a purpose associated with the administration of the trust and its business. 17Nor do I think the confidentiality obligations alter the position. The obligation to keep the documents confidential is not expressed as a qualification on the right of inspection. It is a separate obligation that must be complied with once the information is accessed or disclosed to a unitholder. The limitations imposed by cl 24.1 are subject to the exceptions and qualifications referred to in cls 24.2 and 24.3. One of the exceptions in 24.2(b) is where the disclosure is necessary to comply with any court order. One of the qualifications in cl 24.3 permits the information to be disclosed by the Receiving Party to its banker. 18Finally, I do not think that the analogy with s 198F of the Corporations Act is of any assistance. That section is in different terms and applies in a wide variety of circumstances. What the legislature intended by the words used in that section sheds no light on what the parties to the Unitholders Agreement intended by the words they chose. 19There is, however, one respect in which Order 1 is too broad. It, assumes that Lenark is entitled under cl 14.2 to obtain inspection of documents held by IPPL. However, IPPL is not a party to the Unitholders Agreement and consequently rights that agreement purports to confer against that company are not enforceable against it. Clause 14.2 seems to proceed on the assumption that Industrial Partners can compel IPPL to produce the documents it holds. But accepting that assumption, it does not mean that Lenark has an immediately enforceable right to obtain access to those documents itself: Taylor v Santos Ltd [1998] 71 SASR 434. Consequently, Order 1 must be confined to documents in the custody or possessions of Industrial Partners.
Order 2 20Lenark does not object to producing documents that are actually held by Mr Chisholm that fall within the relevant discovery categories. However, it objects to giving discovery of documents that were once in Mr Chisholm's possession, on the basis that it would be impractical to do so. 21In my opinion, cl 13.1 does not confer on a unitholder a right to obtain access to documents from Industrial Partners. That right is conferred by cl 14.2. Clause 13.1 simply says that, if the director nominated by the unitholder receives documents, then the unitholder is entitled to copies of those documents from the director. There is a question whether cl 13.1 gives a unitholder a right to insist that the director provide the unitholder with the documents or whether the clause is saying that, as between a unitholder and a director on the one part and the other parties to the agreement on the other, a director may give copies to the relevant unitholder. I prefer the latter construction. I do not think that the Unitholders Agreement purports to regulate the rights between a director and his or her appointee. Those rights will be governed by the terms on which the appointee is appointed by the unitholder. Clause 14.2 says, in the case of the right of inspection for which it provides, that the unitholder "must be given access". In contrast, cl 13.1 says that each unitholder "is entitled to receive copies". In my opinion, the difference in wording was chosen to reflect the fact that cl 13.1 was not intended to determine the rights as between director and appointee in relation to access to documents. Rather, "entitled" is used in the sense of "is permitted". It gives the director and the unitholder who nominated him or her a legally enforceable right to make arrangements by which the director gives the unitholder information. But it does not give the unitholder a legally enforceable right to obtain that information. That right, if it exists, must be found elsewhere.
Orders 22It follows from what I have said that there should be an order in the following terms: The plaintiff must provide discovery to the defendants of documents which: (a) fall within the categories of documents to be discovered by the plaintiff pursuant to order 1 made on 5 September 2011; (b) are books, accounts or records of Industrial Partners Holdings Pty Ltd, the Industrial Partners Unit Trust or Industrial Partners Pty Ltd (ACN 140 725 051); and (c) are in the custody or possession of Industrial Partners Holdings Pty Ltd. 23Each party has enjoyed partial success in relation to the interlocutory process. In those circumstances, the parties should bear their own respective costs of and incidental to the interlocutory process.
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: 15 December 2011
Lenark Pty Limited ACN 123 715 962
TheChairmen1 Pty Limited