The Judgment of the Primary Judge
25 No Notice of Cross-Appeal has been filed and BFPL did not seek to challenge the inspection orders which the primary judge made. In addition, Mr Oswal has abandoned two of the categories of materials which he had pressed before the primary judge. Further, on appeal, as we have already mentioned, Mr Oswal did not rely upon any statutory provisions in support of his case.
26 In these circumstances, it is not necessary for us to refer to the primary judge's consideration of those categories of books and records in the possession of BFPL which are not the subject of appeal nor is it necessary for us to refer to his Honour's analysis of the law relevant to the interpretation and application of ss 198F, 290 and 421 of the Corporations Act.
27 Having abandoned his claims against BHL, Mr Oswal further refined the scope of his claims against BFPL.
28 At (2011) 281 ALR 432 at 434-435 [2], the primary judge set out the terms of the categories of books and records in the possession of BFPL inspection of which was ultimately pressed by Mr Oswal before him as follows:
By application, the applicant identifies a number of categories of documents in [5(a) to (g)] that he wishes to inspect by his agents. However, he does not limit his application to those categories. Rather, he requires inspection of "any and all books (as that term is defined in section 9 of the Corporations Act) whether held in paper, electronic or any other form". By way of recognition of the breadth of such an inspection, at the hearing of the application senior counsel for the applicant only sought inspection of the categories of documents described in [4] of a draft minute of proposed orders dated 27 May 2011 (the proposed orders), as follows:
Categories of Documents
4. (a) Any and all advices, correspondence, memoranda, file notes or financial records relating to the potential or actual sale of assets or shares of either Respondent created or received since 17 December 2010 by Ian Menzies Carson, David Laurence McEvoy and Simon Guy Theobald, in their capacity as the Receivers and Managers of BFPL (receivers and managers appointed).
(b) Any and all documents created on or after 1 April 2009 relating to entries appearing in BFPL general ledger account 1639 or any other account held in the name of the Respondents that records the transactions referred to in the schedule to the Statement of Claim dated 10 March 2011 in WAD 66 of 2011, including:
i. Invoices;
ii. Payment requests;
iii. edger (sic) entries;
iv. Cheques;
v. Transfer statements;
vi. Payments approved;
vii. Receipts;
viii. Bank Statements;
ix. Correspondence relating to above.
(c) Any and all documents of the Second Respondent created, or containing information created, on or after 17 December 2010, being:
i. Any primary accounting records relating to any payments made by or on behalf of the First and Second Respondents;
ii. any correspondence with potential purchasers (whether by their agents, employees or otherwise) of:
a. any assets of either of BFPL or BHL; or
b. the Applicant's shares in BHL.
iii. any documents or correspondence containing or referring to negotiations (if any) between BFPL or the Receivers and Managers of BFPL and any one or more of:
a. the Harriet Joint Venture; or
b. any of the individual parties to the Harriet Joint Venture referred to as the Sellers in the Gas Sale Purchase Agreement dated 17 December 2001; or
c. any agent or employee or the persons referred to in (i) or (ii).
iv. General Ledger;
v. contracts involving purchases or expenditure greater than $50,000 entered into by the Receivers by or on behalf of BFPL;
vi. documents constituting any hardcopy or electronic file maintained by the Respondents or the Receivers of BFPL in relation to proceeding number CIV 2329 of 2009 in the Supreme Court of Western Australia; and
vii. any document, including correspondence, relating to the determination of the off-take reference price payable pursuant to an agreement dated 13 December 2002 between, on the one part, Yara Australia Pty Ltd (ACN: 076 301 221) and, on the other part, the Second Respondent.
(d) The audited accounts of the Second Respondent from June 2006 to December 2010.
(e) The following documents evidencing the production profile of the Second Respondent's ammonia production facility plant generated since 1 January 2010:
i. Print outs of the Digital Central System;
ii. Daily and Monthly Management Reports; and
iii. Daily and Monthly Operational Reports.
(f) Any and all documents generated by the Respondents, or at a Respondent's request by a third party, for the purpose of preparing the prospectus of the First Respondent dated May 2008.
(g) Any and all documents, invoices, receipts of transactions, loan documentation and correspondence relating to payments made with respect to construction costs of the ammonia production plant from 1 January 2003 and 31 July 2006.
29 At 435 [3], his Honour noted the basis upon which each category was sought. He said:
Senior counsel identified the grounds upon which inspection of each category is sought, as follows:
• Category 4(a) - Inspection under the general law and s 421(2) to the extent the documents are "financial records" as defined by the Corporations Act.
• Category 4(b) - Inspection under the general law, ss 198F and 290(2) to the extent that they constitute financial records.
• Category 4(c) - Inspection under the general law, s 421(2) to the extent that the documents constitute financial records and s 290 to the extent they constitute financial records.
• Category 4(d) - Inspection under the general law, under s 290 to the extent that they constitute financial records and s 198F in relation to defence of proceeding WAD 66 of 2011 and proceeding SCI 2011 02166 in the Supreme Court of Victoria.
• Category 4(e) - Inspection under the general law and s 290 to the extent that the records are financial records, and under s 421(2) to the extent that the documents are financial records.
• Category 4(f) - Inspection under the general law and s 290 to the extent that the records are financial records.
• Category 4(g) - Inspection under the general law, under s 198F for the purpose of proceeding SCI 2011 02166 in the Supreme Court of Victoria in which Mr Oswald [sic] is plaintiff, and under s 290 to the extent that the records are financial records.
30 Mr Oswal maintained his claim that he was entitled to exercise his rights of inspection by agents - qualified lawyers and professional accountants.
31 The primary judge ordered that Mr Oswal be allowed to inspect the materials in categories 4(c)(i), 4(c)(iv), 4(c)(v), 4(d), 4(e) and 4(f). Inspection of the documents called for by categories 4(c)(i) and 4(c)(v) was allowed on a managed basis (as to which see 447 [74] and 448 [78]). His Honour refused inspection of the materials called for by categories 4(a), 4(b), 4(c)(ii), 4(c)(iii), 4(c)(vi), 4(c)(vii) and 4(g).
32 At 436-437 [6]-[13], the primary judge set out his understanding of the relevant general law principles as follows:
6 The parties accept that a director has a common law right to inspect documents of the company. In Geneva Finance Ltd; Quigley (rec and mgr apptd) v Cook (1992) 7 WAR 496; 7 ACSR 415 (Geneva Finance), Owen J reviewed the authorities and confirmed that the right of a director to inspect books and records which relate to the affairs of the company is an incident of the office of the director and exists so that he or she may properly perform their duties as a director: see, for example, at WAR 507; ACSR 426, summary point 2; Conway v Petronius Clothing Co Ltd [1978] 1 WLR 72 at 89-90; [1978] 1 All ER 185 at 201 (Conway) per Slade J.
7 In Geneva Finance, Owen J also accepted that authority supported the view that a director may make inspection of such documents for such purposes personally or by an agent and may make copies of documents. As to inspection by an agent, Owen J at WAR 504 and 505 relied on older authorities such as Edman v Ross (1922) 22 SR (NSW) 351 (Edman) as supporting the right of a director through an agent to exercise the inspection right.
8 In Geneva Finance, Owen J further accepted that the right of access to documents generally (as opposed to just accounting records) arises under the general law, but the court has a residual discretion whether or not to order inspection: see WAR 507; ACSR 426, summary point 4. However, his Honour accepted that generally speaking a court will presume that a director intends to act in a way consistent with his or her duties and not to abuse the confidence reposed in him or her by using information for an improper purpose. In that sense, a director does not have to demonstrate "need to know" or furnish reasons before exercising the right of access to documents: Owen J at WAR 507; ACSR 426, summary point 6; see also Edman and Conway. I consider that his Honour's statement of this principle in this regard may be considered generally consistent with the principle as stated in other authorities, such as Edman at 361, Berlei Hestia (NZ) Ltd v Fernyhough [1980] 2 NZLR 150; (1980) CLC 40-633 and Re Tai-Ao Aluminium (Aust) Pty Ltd v Cordukes (2004) 51 ACSR 465; [2004] FCA 1488 at [3]-[6]. Accordingly, his Honour's reference to "residual discretion" does not connote a discretion at large whereby the court determines the appropriateness of the request for inspection.
9 However, in Geneva Finance, Owen J also accepted, as I do, that where a receiver is in control of the company the receiver is entitled to possession of the books and records of the company by virtue of the proprietary interest of the appointor and the receiver has no legal entitlement to the documents; and that the entitlement to possession is purposive. It exists to enable the receiver to fulfil the role for which the receiver has been appointed, namely, to administer the company and realise the assets so as to repay or reduce the debt to the debenture holder. But the entitlement to possession is not necessarily exclusive: at WAR 513; ACSR 432, summary points 5, 6 and 7.
10 In all of these circumstances, where a receiver is in possession of books and records the subject of inquiry, where inspection by a director is sought, [it] is the role and function of the receiver rather than the identity of the residual duties which remain with the directors. The receiver will therefore be justified in refusing to grant access to the documents where to do so would impede the receiver in the proper exercise of his or her functions or will impinge prejudicially upon the position of the debenture holder by threatening or imperilling the assets which are subject to charge: Geneva Finance at WAR 513-14; ACSR 432, summary point 8.
11 I also accept that there is a further general principle at play in relation to a director's application to inspect, which is recognised by the authorities referred to above and that is that it may be refused where there is clear proof of a misuse of power, the onus being on those who assert it: for example, Geneva Finance at WAR 513; ACSR 432, summary point 3. While Owen J, in Geneva Finance at WAR 513; ACSR 432, stated this principle of misuse of power in relation to a pre-receivership situation, it plainly has general application. His Honour mentioned the pre-receivership situation in order, on the facts of that case, to accentuate the changed position when a company falls into receivership. His Honour was there merely emphasising that there is no "need to know" principle conditioning the general or common law access right prior to the appointment of a receiver, subject to the misuse of power disqualification. However, an attempt to exercise the general law right of access after the appointment of a receiver is no less subject to that qualification. It is just that there is an additional principle operating once a receiver is appointed and that arises from the pre-eminent responsibility of the receiver to realise the assets on behalf of the appointor.
12 In the circumstances of this application, therefore, it may be said that the applicant is primarily entitled, subject to demonstrated concerns about the proper administration of a company in receivership, to have inspection of a wide range of books and financial records. In this respect the general law right of a director to inspect books and records of a company may be considered to be not as limited as the right of a director under s 198F of the Corporations Act, to which I will shortly turn, to inspect books (other than financial records) personally; not limited, as is the inspection right under s 290, to which I will also shortly turn, to inspect financial records as defined by the Corporations Act; and also not as limited as the right under s 421 of the Corporations Act to inspect a managing controller's records of transactions.
13 I should also add that if the court orders compliance with the general law right (or power) to inspect, the court might do so on terms or conditions that facilitate an orderly inspection that ensures, for example in the case of a receivership, that the functions of the receiver are not unnecessarily impeded.
33 After analysing ss 198F, 290, 421 and 1303 of the Corporations Act and various authorities relevant to the interpretation of those provisions, the primary judge discussed various factors which his Honour considered might militate against the grant of the relief claimed (as to which see 442-444 [41]-[52]). His Honour said:
(a) It may be that the inspection sought by Mr Oswal if granted, would place an unduly onerous burden on the receivers. This burden may interfere with the primary function of the receivers, namely, to realise assets in order to discharge BFPL's liabilities to the receivers' appointor while, in the meantime, running a substantial undertaking - the ammonia business (at 442-443 [41]-[43]).
(b) The receivers claimed that, in all likelihood, Mr Oswal already had in his possession a substantial number of BFPL records. However, there was a contest before the primary judge as to whether Mr Oswal had possession of two laptop computers upon which a substantial number of BFPL's records were thought to be stored. His Honour was not satisfied that the laptops in question were in the possession of Mr Oswal. Nor was he satisfied that the other information, data, books and records which the receivers claimed were in the possession of Mr Oswal were, in fact, in his possession. His Honour, therefore, rejected this contention made on behalf of the receivers (at 443 [45]-[47]).
(c) The receivers contended that, in circumstances where Mr Oswal had left Australia and apparently had no intention of returning, it was incumbent upon him to explain why he was personally unable (or unwilling) to inspect documents and why agents should be appointed to do so. He is, after all, a sophisticated businessman well-versed in reading, understanding and analysing corporate and financial records. His Honour did not consider this ground of objection to allowing inspection to have any weight (at 443-444 [48]-[49]).
(d) The receivers also argued that the Court should not compel inspection at the suit of Mr Oswal because he has failed to provide to the receivers a report concerning the affairs of BFPL as he was required to do. It was submitted that Mr Oswal ought not to be allowed to flout his statutory obligation to report while simultaneously seeking relief under the very same statute which imposed the obligation to report. His Honour also rejected this additional general objection raised by the receivers (at 444 [50]-[51]).
(e) His Honour rejected the final general ground of objection raised by the receivers (at 444 [52]). This ground concerned a tax assessment received by Mr Oswal.
34 The primary judge commenced his consideration of the particular categories of documents in question at 444 [53].
35 His Honour began his consideration of category 4(a) at 444 [53]. In rejecting category 4(a), his Honour noted that, as at mid 2011, there had been no actual sales of assets of BFPL, of any shares in BHL or of any shares in BFPL. At 445 [58], his Honour held that inspection of documents concerning potential sales of such assets or shares by the receivers might threaten the proper administration of the receivership or imperil the assets the subject of the charge under which the receivers had been appointed.
36 At 445-446 [59]-[63], when continuing to address category 4(a), his Honour said:
59 On behalf of the applicant it is submitted that there is a philosophical debate about the continued role a director in the position of the applicant may have in relation to the administration of a company which is in receivership. In my view, quite reasonably, senior counsel for the applicant submits that the relevant principle is not and cannot be that the director cannot do anything unless the receiver says so. The directors in this respect should not be considered paralysed. It may also be accepted, in my view, that there are some things that a director may reasonably assume a receiver would never do if it were to conflict with the interests of their appointor.
60 In this case, the applicant says in his affidavit sworn 19 April 2011 and filed 4 May 2011, that he believes the receivers are likely to be considering negotiating with one or more of the partners of the Harriet Joint Venture with a view to settling proceedings involving those partners and he is concerned that may entail a negotiation of a higher gas purchase price to be paid under the gas sale and purchase agreement between BFPL and the "Harriet Gas Sellers" dated 17 December 2001 (GSPA).
61 The applicant says that while the negotiations of a higher gas purchase price may immediately benefit the secured creditor in the sense of making it easier to negotiate a sale of shares or assets mentioned above, it would be very disadvantageous to BFPL and its shareholders (BHL). In this regard, BFPL currently pays approximately $1.30 per mmBTU for its gas supply, pursuant to the GSPA. The current spot price is in the region of $10 per mmBTU. If the receivers caused BFPL to pay more than the current price, the profitability of BFPL would fall.
62 The applicant says therefore he wishes to know what negotiations are taking place between the receivers and the respective purchasers of the assets and shares in order that he "may take such steps as are necessary to protect the interests of the second respondent and its Shareholders".
63 In my view, if the court were to make an order obliging BFPL to allow inspection of documents falling into this category, there would be a real risk that any potential sale of assets or shares by the respondents could be put at risk. The applicant has made a clear statement that he might need to take such steps as are necessary to protect the interests of BFPL and its shareholders, which plainly include legal proceedings. I consider the inspection proposed raises the real risk of threatening the performance of the receiver. It is not appropriate in the circumstances, in my view, to make an order by way of enforcement of a general law right of inspection of the documents falling generally into category [4(a)].
37 His Honour dealt with category 4(b) at 446 [64]-[67]. At 446 [65], his Honour noted that, in proceeding WAD 66 of 2011, in which Mr Oswal is a party, McKerracher J had ordered that, by 3 June 2011, the receivers provide discovery of this very same category of documents. For this reason, at 446 [65]-[67], his Honour held that it was otiose to make yet a further order compelling inspection of documents in this category and unduly onerous on the receivers to subject them to such an order. His Honour therefore refused inspection of the documents called for by category 4(b).
38 His Honour went on to observe that the documents in category 4(b) were being sought in order to assist Mr Oswal to defend proceeding WAD 66 of 2011. At 446 [68], his Honour said that, in the circumstances of this case, he was of the opinion that Mr Oswal did not have a general law right to inspect the documents covered by category 4(b) "… as the inspection would not obviously arise pursuant to his duties as a director of [BFPL]". His Honour was not persuaded that inspection of these documents compelled by Court order would be in the best interests of BFPL.
39 In the appeal, Mr Oswal has not challenged his Honour's decision in respect of category 4(b).
40 His Honour dealt with category 4(c) at 446-449 [70]-[82]. Category 4(c) is confined to documents created in the period after the appointment of the receivers. The receivers were appointed on 17 December 2010. His Honour granted relief in respect of the documents described in some of the subparagraphs of category 4(c). We shall not refer to those sub-categories in this summary of his Honour's Reasons.
41 Category 4(c)(ii) covers correspondence between the receivers and potential purchasers of the assets of BFPL or BHL or Mr Oswal's shares in BHL.
42 Category 4(c)(iii) addresses documents relevant to the receivers' dealings with the Harriet gas joint venture.
43 Category 4(c)(vi) seeks documents concerning the WA proceedings.
44 Category 4(c)(vii) seeks documents in respect of the receivers' dealings with Yara.
45 At 447 [75], the primary judge refused inspection of documents covered by category 4(c)(ii). He held that inspection of these documents was not compelled by s 421 of the Corporations Act and that inspection of these documents should not be forced upon the receivers under the general law because access to such documents at the time of his Honour's judgment would unreasonably interfere with, or threaten, the assets which were the subject of the receivership.
46 Included within his Honour's reasons for rejecting Mr Oswal's claim to inspect documents in category 4(c)(ii) were some of the reasons given by his Honour for rejecting inspection of the documents in category 4(a).
47 At 447-448 [76], his Honour applied the same reasoning to the documents called for by category 4(c)(iii) and at 448 [79]-[80] he applied the same reasoning to the documents called for by category 4(c)(vi).
48 At 448-449 [81]-[82], the primary judge dealt with category 4(c)(vii). At 448-449 [82], his Honour said:
These documents are not financial records, in my view, and so are not affected by s 421 and s 290 of the Corporations Act. While these would be affected by the general law right of inspection I would refuse to order inspection or access to the documents on the basis that the question of the off take price under that agreement is highly referable to the value of the assets of BFPL and the share price and that to order such inspection during the course of the receivership, while the receivers are involved in the realisation of assets, including shares, the sale thereof may be threatened or imperilled if inspection or access to this class of documentation were ordered.
49 At 449-450 [83]-[98], his Honour considered categories 4(d), 4(e) and 4(f). His Honour allowed inspection in respect of those categories.
50 At 450 [99]-[104], his Honour considered category 4(g). His Honour declined to compel BFPL to permit inspection of documents in category 4(g). Mr Oswal did not appeal from his Honour's decision in respect of category 4(g).