London City Equities Ltd v Penrice Soda Holdings Ltd

JUDGE: ROBERTSON J DATE: 5 APRIL 2012 PLACE: SYDNEY

REASONS FOR JUDGMENT 1 I have before me an interlocutory application filed on 20 February 2012. It relates to proceedings under s 247A of the Corporations Act 2001 (Cth) heard by me on 30 May 2011 and the subject of judgments dated 17 June 2011 and 25 July 2011 in which I made orders under s 247A. The former judgment is London City Equities Ltd v Penrice Soda Holdings Ltd [2011] FCA 674, (2011) 281 ALR 519; (2011) 84 ACSR 573 and the latter is London City Equities Ltd v Penrice Soda Holdings Ltd (No 2) [2011] FCA 822. 2 The evidence on the present application is, for the plaintiff, three affidavits sworn by Peter Edward John Murray dated 17 February, 22 March and 2 April 2012 and, for the defendant, two affidavits sworn by Peter Andrew Campbell dated 13 and 28 March 2012 and an affidavit sworn by Guy Redvers Roberts dated 29 March 2012. 3 The interlocutory application seeks orders in respect of four matters which I shall deal with in turn.

Representation of the plaintiff 4 I made an order when the matter was last before me that Peter Edward John Murray, Director and Chief Operating Officer of the plaintiff, be approved to represent the company in this Court during the application and in any related hearing, until further notice. 5 That is, formally I dispensed with compliance with rule 4.01(2) of the Federal Court Rules. Rule 4.01(2) provides: "a Corporation must not proceed in the Court other than by a lawyer." By rule 1.34 the Court may dispense with compliance with this rule. 6 The evidence on this point is at paragraph 3 of the affidavit sworn by Mr Murray dated 17 February 2012. Mr Murray deposes that he is not a legal practitioner however he believes he has by training as a Chartered Accountant and practical experience at senior corporate and advisory levels a good understanding and knowledge of corporate legal matters such as contracts and Corporations Act issues. He believes he has the skills to represent the plaintiff "in its dealings with the court" in the "post Section 247A judgement tasks required to complete the inspection of Penrice documents." 7 This aspect of the interlocutory application is not opposed in the sense that the defendant "takes no position in connection with this order." 8 The nature of the court's discretion under similar rules was considered by Full Courts in Molnar Engineering Pty Limited v Burns (1984) 3 FCR 68 and ACT General Cleaning Company Pty Ltd v Naoum (1996) 67 FCR 361 and by French J in Termi-Mesh Australia Pty Ltd v Josu Manufacturing Pty Ltd [1999] FCA 1241. In my opinion it was appropriate for the orderly disposition of the present interlocutory proceedings that the company be represented and Mr Murray was an appropriate person to represent the company. The issues raised are not complex. There is a public interest in the expeditious disposal of the application. No disadvantage was suggested to either the plaintiff or the defendant. Although Mr Murray was and is a deponent I do not see any difficulty thus arising in this case. Mr Murray has a detailed knowledge of circumstances and events relevant to the application. For those reasons I made the order referred to above.

Extension of time 9 The relevant parts of the orders I made on 25 July 2011 were that the specified books were to be made available for inspection by no later than 22 August 2011 and in the event that proceedings were not commenced within seven months of the date of those orders the books were to be returned to the defendant. 10 The interlocutory application before me asks that the period of seven months be extended to 31 May 2012. The original seven months ended on or about Monday 27 February 2012. 11 I note that in the written submissions on behalf of the defendant in relation to the final orders, exchanged and filed between the time of the original judgment and the time of the orders setting the period of seven months, it was noted that if necessary the plaintiff had liberty to apply to retain the documents for longer. Although he opposes the extension of time, counsel for the defendant accepts that an extension of time would be within the liberty to apply order that I made on 25 July 2011. 12 There was some short delay in making the defendant's records available. That did not occur until 9 September 2011. There was also some difficulty, referred to by Mr Murray in his affidavit evidence, in the plaintiff seeking to relist the matter. It seems that Mr Murray took steps with the Court to relist the matter in mid December 2011 and the delay until 20 February 2012 should not be wholly attributed to the plaintiff. 13 However some other matters on which the plaintiff relies are attributable to its own choices. For example, Mr Murray says that of the seven persons approved in my orders of 25 July 2011 the services of four have been terminated and three of the others were unable to play an active inspection role so that he is the only one available of the original eight. There has been no application to substitute people authorised by order 1 of 25 July 2011, either by consent or by recourse to liberty to apply. I also do not see why any question of the location in South Australia of the documents counts in favour of further time given that the defendant offered in September 2011 to forward a copy of the full set of documents instead of the inspection having to be at the defendant's premises in South Australia. 14 The defendant submits that the plaintiff has been provided with an ample opportunity to inspect. Mr Roberts states in his affidavit that the continuing correspondence from and queries raised by the plaintiff related to its inspection of the defendant's documents interfere with and are a substantial distraction from the defendant's business. 15 However, in the circumstances I refer to above, particularly the short delay in making the defendant's records available and the difficulty in the plaintiff seeking to relist the matter, I shall vary the order I made on 25 July 2011 so that the period of seven months is changed to 10 months, to end on 25 May 2012. I understand the plaintiff has in fact been making the permitted use of the documents in the meantime. It is a matter for the plaintiff whether and when it engages or re-engages legal representatives or others to assist in the tasks and I make that order irrespective of the outcome of the claims in relation to categories 8 and 9. The categories and liberty to apply 16 I make the following preliminary observation with reference to the express liberty to apply in order 4 of the orders dated 25 July 2011. 17 In Abigroup Limited v Abignano (1992) 39 FCR 74 at 88 Lockhart, Morling and Gummow JJ said: The reservation of liberty to all parties to apply to a court is a provision directed essentially to questions of machinery which may arise from the implementation of a court's orders. See also Minister for Immigration and Multicultural Affairs v Wang (2003) 215 CLR 518 at [58] where this statement was approved. 18 Similarly, in Comcare v Grimes (1994) 50 FCR 60 at 62 Wilcox J said: The reservation of liberty to apply does not enable a party to ask a court or a tribunal to hear and redetermine a matter of which it has already disposed. The purpose of such a reservation is to enable a party to ask the court or tribunal to deal with a matter arising out of the orders already made; generally, to resolve an argument about the detail of action already ordered to be undertaken. The situation is described in the fifth edition of Daniell's Chancery Practice at 875: The only effect of such a reservation is to permit persons having an interest under the [order] to apply to the court touching such interest in a summary way without again setting the case down. It does not enable the court to deal with matters which do not arise in the course of working out the [order]. This understanding of the effect of a reservation has been adopted in Australia: see Haviland v McLeary (1894) 15 NSWLR Eq 22 at 24; Dowdle v Hillier (1949) 66 WN 155 at 156 Re Porteous [1949] VLR 383 at 385; AR Marr Pty Ltd v Chaplin (1986) 66 ACTR 31 at 39. 19 Justice Sackville in QDSV Holdings Pty Ltd v Trade Practices Commission (1995) 59 FCR 301 at 315 said "the reservation of liberty to apply in a final order does no more than reserve to the parties a liberty...to apply for any order considered necessary or desirable for the working out of the order." Liberty to apply cannot be used to alter the substance of an order already made: Dowdle v Hillier (above); Cristel v Cristel [1951] 2 KB 725; Clark Equipment Credit of Australia Ltd v Como Factors Pty Ltd (1988) 14 NSWLR 552 at 559. Contrary to the submissions on behalf of the plaintiff in the present case, I do not regard what is sought on the present application as "clarification" of categories 8 and 9.

Category 8 20 The plaintiff seeks to vary Category 8 as follows: Category 8 of Schedule A of the orders to include in the periods specified (a) any external independent report/advice on computations of volumes of material (and, if included, values) of aggregates/schist/landfill inventories and (b) any documents relating to hedging liabilities from an entity called Visual Risk. 21 The category the subject of paragraph 8 of Schedule A of the orders of 25 July 2011 was in the following terms: All documents created or received in the periods specified below evidencing the accounting treatment of: 8.1 aggregates/schist/landfill (1 July 2006 to 30 June 2010); 8.2 hedging liabilities (1 May 2008 to 1 March 2009); or 8.3 superannuation defined benefits shortfall (30 June 2007 to 1 March 2009). 22 The plaintiff says that it sought access on 23 January 2012 "to the outstanding information in relation to this category". By letter dated 23 January 2012 the plaintiff wrote to the defendant stating that the following information had not been made available: • External independent report/advice on computations of volumes of material (and, if included, values) of aggregates/schist/landfill inventories. • Documents relating to hedging liabilities from a firm called Visual Risk (Mr Lupoi's affidavit of 28 April 2011). 23 The defendant's solicitors replied by letter dated 2 February 2012. It was said that the documents sought did not fall within category 8. 24 The plaintiff says that this approach is contrary to the treatment adopted for accounting recognised in the defendant's 2011 Annual Report where in Note 2 on page 50 in the Statement of Significant Accounting Policies it is said under the heading "Aggregates/Landfill": The Group uses an independent source to produce a volumetric survey of storage dumps, stated in cubic metres. From this, a conversion factor known as a density factor is applied, to convert cubic metres to metric tonnes. The density factor initially came from a series of samples that was taken from across the Mine site by an independent laboratory employed to determine the density of the product. Since then, the average density is constantly compared to density ranges for products of similar geological composition to the Group's products. This information is publicly available from a number of sources in the UK, Europe, USA and Australia. Mr Murray stated his belief that supporting data for any sums that appear in a company's accounts are important element of "accounting treatment" and external computations of landfill and hedging liabilities are no different to entities obtaining and applying to their accounts external real estate property valuations or stock-market valuations of investments. He also stated his belief that it was not possible to assess properly the extent of the defendant's compliance with s 674 or s 1041H without access to this material. 25 By letter dated 24 February 2012 the defendant opposed this order and said that it did not accept that that was any basis for orders for production of further documents: nothing in the affidavit accompanying the application demonstrated any proper ground for the order sought. More fundamentally, the defendant wrote, the proposed order sought to review and expand the scope of the orders of 25 July 2011. In the defendant's view, this was tantamount to an appeal and it was wholly inappropriate for the plaintiff to seek to reopen the orders in the way proposed. 26 It is to be recalled that the list of categories attached to the originating process and dealt with in my earlier judgments included the following: 8. All documents referring or relating to the accounting treatment of aggregates, schist (Landfill), hedging liabilities and superannuation liabilities created or received during the period from 1 July 2005 to date. 9. All records of sales of aggregates and/or schist (Landfill) and all agreements for the sale of aggregates and/or schists from 1 July 2005 to date. 27 I was not persuaded that the original category 9 was relevant. I took the view that the concerns Mr Murray then expressed as to the accounting treatment of aggregates and schist would be included in the other categories, particularly categories 4 and 8 and there was a distinction I then made between the original category of documents referring or relating to the accounting treatment and the category that I ordered, that is, documents evidencing the accounting treatment. 28 I remain of the view I then expressed. Further, I do not regard this paragraph of the interlocutory application as a working out of the orders previously made. I also note that the plaintiff's concern as articulated in written submissions dated 12 July 2011 was to the effect that the quantities of aggregate, schist and landfill should be accounted for as non-current assets on the basis that the relevant quantities would take many years to sell. I am not persuaded that the proposed order goes to that question. 29 I was not taken in terms to the reference to "Visual Risk" in Mr Lupoi's affidavit of 28 April 2011 but there appears to be a reference at paragraph 45 of that affidavit that the figures presented in the defendant's annual and half yearly accounts "are derived from a mark to market valuation undertaken by an independent firm called Visual Risk". But in any event it has not been shown that that material evidences the accounting treatment of hedging liabilities. Otherwise I repeat what I have said in the immediately preceding paragraph. 30 For those reasons I decline to make order 3 of the interlocutory application.

Category 9 31 Paragraph 4 of the interlocutory application seeks to amend the original category 9 which read: 9. All documents created or received between 1 May 2009 and 31 August 2009 evidencing expenditure by Penrice: 9.1 relating to the general meeting held on 27 July 2009; and 9.2 for the purpose of supporting the position of Mr Heard and Mr Trebeck. 32 The expansion proposed reads as follows: All documents created or received between 1 May 2009 and 31 August 2009 evidencing discussions held by the Penrice Shareholder Meeting Sub-Committee and of the Penrice Managing Director in relation to the proposed board appointments and evidencing expenditure by Penrice relating to the general meeting held on 27 July 2009, such to include: (a) all minutes of meetings and documents provided to or emanating from the Shareholder Meeting-Committee; (b) all documents held by Penrice recording written, electronic or telephone communications between shareholders of the company on one hand and any of the members of the Shareholder Meeting Sub-Committee (Messrs Fletcher, Gibson and Hirst), the Penrice Managing Director (Mr Roberts) or Penrice advisors KPMG on the other; (c) all vouchers, invoices, statements and letters of appointment relating to all sums spent by Penrice on the July 2009 Shareholder Meeting; and (d) all time sheets or similar documentation held by Penrice recording executive time incurred by the Penrice Managing Director and the Penrice Company Secretary in communicating to shareholders prior to the July 2009 Shareholder Meeting. It will be seen that there is no longer any specific reference to the position of Mr Heard and Mr Trebeck. 33 Category 9 of the orders of 25 July 2011 was the result of my consideration of categories 10 to 14 attached to the originating process. They were: 10. All documents referring to expenses incurred by the company (either directly or through indemnification of any officer) in relation to the general meeting held on 27 July 2009 (July 2009 Meeting). 11. All documents (including terms of reference) relating to the creation of a sub-committee which had as its stated purpose, the management of the process of convening the July 2009 Meeting (Sub-Committee). 12. All records of meetings of the Sub-Committee. 13. All documents considered or reviewed by the Sub-Committee. 14. All documents recording communications created or received by Penrice, or representative of Penrice, referring or relating to the July 2009 Meeting. 34 I concluded that the factual basis set out in my judgment given on 17 June 2011 demonstrated that categories 11 to 14 were insufficiently relevant as being too broad. I accepted that there was a sufficient basis for access to books evidencing expenditure by Penrice for the purpose of supporting the position of the two directors and I remain of that view. Proposed category 9 is similar to the original categories 11 to 14 which I rejected. 35 In his affidavit sworn on 17 February 2012, Mr Murray refers to a letter dated 21 September 2011 which raised this issue. That letter said: I have noticed that there appears to be no documents "created or received" by Penrice that are in accordance with Justice Robertson's Category 9 items regarding expenditure by the company in relation to the shareholder meeting of 27 July 2009. 36 The reply to this letter, dated 26 September 2011, stated that the defendant had no documents falling within the wording of that category and, therefore, there were no documents to be produced pursuant to that part of the order. 37 By letter dated 20 October 2011 Mr Murray contended that the order clearly required two types of documents, those relating to the expenditure of the General Meeting and those relating to the expenditure supporting the position of Mr Heard and Mr Trebeck. This was incorrect as a matter of construction of the orders, as pointed out by the solicitors for the defendant in their letter dated 2 November 2011. 38 By letter dated 24 February 2012 the solicitors for the defendant Penrice stated that order 4 of the interlocutory application was opposed because there was no basis for the order sought and the order sought was effectively an appeal from the orders of 25 July 2011. 39 This position is confirmed by a consideration of Mr Murray's affidavit sworn on 17 February 2012 in relation to this proposed order. Mr Murray refers to his affidavit of 23 December 2010 which was, of course, taken into account in the judgments to which I have referred. 40 I note as well that in light of my reasons for judgment of 17 June 2011 there was no relevant dispute between the parties as to the appropriate form of final orders in relation to category 9. 41 I note also that the plaintiff is not by this proposed amended category seeking to enforce the orders of 25 July 2011 but is seeking to widen the category in a manner inconsistent with those orders. As I have noted, the present position is that no documents have been produced under category 9. 42 For those reasons I decline to make order 4 of the interlocutory application.

Conclusion and orders 43 The plaintiff has been successful in relation to the procedural matter involved in order 1 of the interlocutory application, which was not opposed. In relation to order 2, I have extended the period and that was opposed but I do not think that that matter should lead to a costs order one way or the other in light of the circumstances which I have recited in dealing with that part of the application. In relation to orders 3 and 4 of the interlocutory application I have declined to make the orders sought and the plaintiff has been unsuccessful. The costs order I will make is that the plaintiff pay two-thirds of the defendant's costs. I certify that the preceding forty-three (43) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Robertson.