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[2011] FCA 609
Federal Court of Australia
2011-06-03
Mr P, Barker J
Original judgment source is linked above.
IN THE FEDERAL COURT OF AUSTRALIA WESTERN AUSTRALIA DISTRICT REGISTRY GENERAL DIVISION WAD 67 of 2011
BURRUP FERTILISERS PTY LTD (RECEIVERS AND MANAGERS APPOINTED) ACN 095 441 151
application to inspect books and financial records 1 The applicant, who is a director of each of the respondents (Burrup Holdings Limited (BHL or first respondent) and Burrup Fertilisers Pty Ltd (Receivers and Managers Appointed) (BFPL or second respondent)) and the owner of 30% shares in BHL, which is the parent company of BFPL, seeks access to books and financial records of both BFPL and BHL. To date, access has not been provided and is opposed by BFPL by its receivers and managers. The applicant makes his claim pursuant to s 198F, s 290(2), s 421 and s 1303 of the Corporations Act 2001 (Cth) (Corporations Act) and his general or common law rights. 2 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. 3 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, s 198F and s 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 is plaintiff, and under s 290 to the extent that the records are financial records. 4 The proposed orders contemplate, as does the application, that the applicant will conduct his inspection by agents - qualified lawyers and accountants. 5 When the matter came on for hearing, the applicant and first respondent (BHL) indicated that the application, so far as it related to BHL, could be dismissed by consent without any order as to costs, the parties agreeing that BHL does not hold any relevant documents and an order was then made to that effect.
general law 6 The parties accept that a director has a common law right to inspect documents of the company. In Geneva Finance Ltd; Quigley (Receiver and Manager Appointed) v Cook (1992) 7 WAR 496 (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, 507, summary point 2; Conway v Petronius Clothing Co Ltd [1978] 1 WLR 72; [1978] 1 All ER 185 (Conway), Slade J at 89‑90, 201. 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 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 507, 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 507, 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, Fox v Gadsen (2003) ACSR 43 at [23], Berlei Hestia (NZ) Ltd v Fernyhough [1980] 2 NZLR 150; (1980) CLC 40-633 and Re Tai-Ao Aluminium (Australia) Pty Ltd v Cordukes [2004] FCA 1488; (2004) 51 ACSR 465 at 467. 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: 513, 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, 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 513‑514, 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 513, summary point 3. While Owen J, in Geneva Finance at 513, 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 a 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 ensues, for example in the case of a receivership, that the functions of the receiver are not unnecessarily impeded.
section 198F(1) 14 Section 198F(1) of the Corporations Act provides as follows: 198F Right of access to company books Right while director (1) A director of a company may inspect the books of the company (other than its financial records) at all reasonable times for the purposes of a legal proceeding: (a) to which the person is a party; or (b) that the person proposes in good faith to bring; or (c) that the person has reason to believe will be brought against them. Note: Section 290 gives the director a right of access to financial records. 15 Section 198F(3) provides that a person authorised to inspect books under this section for the purposes of a legal proceeding may make copies of the books for the purposes of those proceedings. 16 Section 198F does not by its terms empower the Court to make orders about inspection. Rather, it is a provision which creates a statutory right of inspection in a director in the circumstances described in s 198F(1). The Court is however, pursuant to s 1303 of the Corporations Act, empowered to compel compliance with the provision. If any person in contravention of the Corporations Act refuses to permit the inspection of any book or to supply a copy of any book the Court may by order compel an immediate inspection or order a copy to be supplied. In the circumstances of this case, the applicant contends there has been contravention through the failure or neglect of BFPL to permit inspection under the statutory right and now seeks an order for inspection. 17 In my view, because the Court is empowered to order compliance under s 1303, the Court may be considered to have something in the nature of a discretion to grant or withhold a compliance order. Ordinarily one would expect that where contravention is made out the Court would grant the inspection that has been requested. However, the Court is not by the terms of s 1303 obliged automatically to compel compliance, and it may be that, in the circumstances of a particular case, good reasons are advanced as to why the Court should withhold an order. For example, it seems to me that it may be considered relevant to the question whether or not a compliance order should be made, that the request for discovery is unduly onerous, or that the company should not be expected to bear the cost of the large inspection exercise, or that the party requesting inspection already has the documents, or that, as a matter of convenience, the documents are about to be supplied to the person in some other way which makes the need for a compliance order unnecessary or redundant. These may be suggested as examples of how, in particular circumstances, a court might decline to grant a compliance order under s 1303 even though contravention of the Act is demonstrated in a particular case. Of course, the examples suggested are not intended to be exhaustive. 18 For similar reasons, the Court might grant a compliance order on terms or conditions to ensure it is conducted in an effectual manner. 19 On the face of s 198F(1) a director, and only the director, is entitled at all reasonable times for the purposes of a legal proceeding to which the person is a party to inspect the books of the company (other than its financial records). The definition of "books" in s 9 of the Corporations Act is very wide indeed and includes (d) "a document". 20 In this case the applicant identifies particular legal proceedings to which he is a party in respect of which he seeks to exercise this statutory right of inspection, namely, WAD 66 of 2011 in this Court and SCI 2011 02166 in the Supreme Court of Victoria. 21 Therefore, on the face of it, the applicant is entitled to have access to all those things that fall within the definition of "books" claimed in [4(b)] of the proposed orders, other than financial records. 22 In the proposed orders, the applicant proposes his agents be authorised to conduct the inspection. It will be noted that, under s 198F(3), it is the person authorised to inspect the documents - ie, the director who makes the application - who may make copies of the books. However, nothing is said in s 198F about the person authorised being entitled to conduct the inspection by his or her agents or that his agents may make copies. In this regard, the entitlement of a director to have access to records of a company under s 198F of the Corporations Act may be contrasted with the entitlement, under s 290(2), of a director to obtain the order of a court authorising a person to inspect the financial records of a company "on the director's behalf". 23 BFPL opposes orders being made under s 198F in the terms sought by the applicant because, amongst other things, there is no power for the Court to authorise a person, other than a director himself or herself, to conduct the inspection. It contends that the insertion of s 198F into the Corporations Act was intended to do no more than ameliorate difficulties faced by directors under the general law to obtain access to company books and records, in order to defend themselves against actions for breach of duty by the company. This was necessary because under the general law rule it is difficult to show that the exercise of the right for such purposes is to enable the director to perform his or her duties as director for the benefit of the company, as the common law rule requires: see Stern v Sekers [2010] NSWSC 59 at [254]-[255]; Australian Corporation Law Principles and Practice: [3.2.0055]. 24 While it may be suggested, as Slade J did in Conway in respect of an earlier English statutory inspection provision, that the statutory right of a director to inspect books under provisions such as s 198F and s 290 is intended to reflect the breadth of the common law right of inspection, and so s 198F should be liberally construed to permit an inspection by a person on behalf of the director, in my view s 198F creates a separate and distinct statutory right (as does s 290(2) and s 421) of inspection in respect of the documents mentioned, to be construed according to its terms. These terms, in my view, do not permit inspection by an agent. I observe it would have been the easiest thing for the Parliament to have inserted in s 198F a provision such as s 290(2) but it chose not to do so. 25 Consequently, in my view, the proper construction of s 198F, taking into account its express terms, the terms of s 290(2) and the background to the provision contended for by BFPL, which I accept, is that a director has a personal right of inspection and the Court does not have the power to authorise inspection of the books under that provision by another person on behalf of a director.
section 290(2) 26 Section 290 of the Corporations Act provides as follows: 290 Director access Personal access (1) A director of a company, registered scheme or disclosing entity has a right of access to the financial records at all reasonable times. Court order for inspection on director's behalf (2) On application by a director, the Court may authorise a person to inspect the financial records on the director's behalf. (3) A person authorised to inspect records may make copies of the records unless the Court orders otherwise. (4) The Court may make any other orders it consider 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). 27 The expression "financial records" is defined in s 9 of the Corporations Act in very broad terms, such that it is not limited, but "includes": (a) invoices, receipts, orders for the payment of money, bills of exchange, cheques, promissory notes and vouchers; and (b) documents of prime entry; and (c) working papers and other documents needed to explain: (i) the methods by which financial statements are made up; and (ii) adjustments to be made in preparing financial statements. 28 I have observed above that s 290, like s 198F, creates a statutory right of inspection of the documents mentioned which is separate and distinct from the general law, to be construed according to its terms. 29 Section 290(1) establishes the statutory right of a director to access financial records of company at all reasonable times. 30 Unlike s 198F, s 290 by (2) empowers the Court to make an order concerning the inspection of financial records on behalf of the director by another person. 31 If this statutory right to inspect is denied then, as in the case of contravention of s 198F, a director may seek a compliance order pursuant to s 1303. Similarly, as explained above in relation to s 198F, the power of the Court to grant a compliance order necessarily comprehends the power to withhold such an order and this in turn raises the possibility that, for good reasons, a compliance order may be declined in the circumstances of a given case. 32 Similarly, inspection may be ordered on terms or conditions if the circumstances require it. 33 A question arises under s 290 as to what documents are comprehended by "financial records". In opposing the applicant's claim for the right to inspect those documents or records described in [4] of the proposed orders, which fall into the category of "financial records", BFPL contend that courts have not sought to extend the meaning of the expression beyond the plain language of the Act. By reference to authority BFPL submit that it is only primary documents such as the following that should be considered financial records: · Monthly sales reports constituting sales figures and comments on sales figures: Linfox Transport (Aust) Pty Ltd v Arthur Yates & Co Limited (2003) 47 ACSR 261. · Projections such as budgets, trial balances or business plans, prime entries in cash books and journals, documents used to facilitate the preparation or auditing of annual or half yearly financial statements, documents which keep track of matters such as sales, cost of sales, cash, debtors, creditors and banking and financial arrangements and liquidator's reports: Australian Securities and Investments Commission v Rich (2005) 216 ALR 320. · Profit and loss statements, balance sheets, financial reports, bank statements, equity loan agreements with investors, share certificates issued by capital and deeds of release in furtherance of rollover transactions, provisional liquidator's reports and liquidator's reports, tracing spreadsheets: Australian Securities and Investments Commission v Sydney Investment House Equities Pty Ltd (2008) 69 ACSR 1. · Loan accounts and journal entries in general and ledger: Commissioner of Taxation v Barnes Development Pty Ltd [2009] FCA 830. · Loan contract including its financial information: CBA v Marwan Tabet [2008] VSC 161. · General ledgers, trial balances and books incorporating the journal entries made to prepare or finalise the financial statements: Haines v Altarcoo Pastoral [2009] NSWSC 214. · Tax invoices, receipts, payment printouts, documents containing explanations or reasons for payments: Carey v Korda [2010] WASC 362. · Financial report for a financial year, director's report for a financial year, auditor's report on the entity's financial report for a financial year, half year report, auditor's audit report or review of the half year report, financial statements, notes to the financial statements, directors' declaration that financial statements comply with accounting standards, balance sheet, profit and loss account, cash flow statement: Australian Securities and Investments Commission v ABC Fund Managers (2001) 39 ACSR 443. 34 Consequently BFPL contends that it is not open to the Court under s 290(2) to order inspection, as financial records, of various categories of documents sought by the applicant including advice, correspondence, memoranda and file notes that extend to a range of topics including the potential sale of shares in the respondents, tax advice, commercial negotiations, contracts, the production profile and construction costs of BFPL's plant and the preparation of a prospectus in 2008. Nonetheless, BFPL concedes that the documents described in [4(b)(i)] to [4(b)(ix)] and [4(c)] and [4(g)] of the application, may possibly fall within the definition of a financial record. 35 However, BFPL submit that this is an insufficient basis for the Court to order inspection of such financial records by a person on behalf of the applicant because the applicant has an "onus" to persuade the Court that it should exercise a discretion in favour of granting access to his nominated agents, which he has failed to discharge because:
section 421 38 Section 421 provides as follows: (1) A managing controller of property of a corporation must: (a) open and maintain an account, with an Australian ADI, bearing: (i) the managing controller's own name; and (ii) in the case of a receiver of the property - the title "receiver"; and (iii) otherwise - the title "managing controller"; and (iv) the corporation's name; or 2 or more such accounts; and (b) within 3 business days after money of the corporation comes under the control of the managing controller, pay that money into such an account that the managing controller maintains; and (c) ensure that no such account that the managing controller maintains contains money other than money of the corporation that comes under the control of the managing controller; and (d) keep such financial records as correctly record and explain all transactions that the managing controller enters into as the managing controller. (2) Any director, creditor or member of a corporation may, unless the Court otherwise orders, personally or by an agent, inspect records kept by a managing controller of property of the corporation for the purposes of paragraph (1)(d). 39 In my view, the right of a director under s 421(2) to inspect the records kept by a managing controller under s 421 may also be affected by discretionary consideration. This is because, by s 421(2), a director may, "unless the Court otherwise orders", personally or by an agent inspect records kept by a managing controller of property of the corporation for the purposes of para (1)(d) of s 421. If a receiver for example fails to permit inspection and a compliance order is sought, then the question of the exercise of this discretion will arise. Inevitably, the effect that inspection might have on the management of a receivership should be regarded, amongst other issues that might bear on the appropriateness of inspection given the performance of the receiver's role. 40 Again, any compliance order might be on terms of conditions designed to achieve the effectual conduct of the inspection, on both the company's and the director's part.
factors militating against grant of orders 41 In this instance, BFPL draw attention to the breadth of the inspection that the applicant demands. The application by [5] in its original form did not limit the application to the listed documents in (a)‑(g) but sought the right to inspect "any and all books (as that term is defined in s 9 of the Corporations Act) whether held in paper, electronic or any other form". 42 By [4] of the proposed orders, however, the applicant has restructured his request for inspection, though it is still in comprehensive terms. The array of documents that might be required to be organised by the company for inspection could be vast, as BFPL suggests. By way of one example of the effort that BFPL say would be required to make relevant documents available for inspection, BFPL draws attention to the request for "all documents, invoices, receipts of transactions, loan documentation and correspondence relating to payments made with respect to construction costs of the ammonia production plant" in [4(g)] of the proposed orders. In his affidavit on behalf of BFPL, Simon Guy Theobald at [26(a)] says that this construction took place over nearly four years and the financial documents falling within this category alone are likely to be vast. 43 BFPL contend that at this point the receivers of BFPL are in possession of the company's assets and are faced with the task of running a substantial undertaking - the ammonia business, while at the same time conducting a sale process in respect of assets. It contends that the compliance exercise would require staff from the IT, financial and administrative teams within the company to direct their attention to meeting the inspection requirements and this would itself represent a serious diversion from other priorities. 44 In my view, the question of how onerous the inspection required may be in terms of diverting the primary responsibility of the receivers to realise assets and sell the existing business, is relevant to the Court's consideration of whether orders should be made under the general law, particularly where a company is in receivership as here, or under the Corporations Act. 45 BFPL raises an additional reason why inspection orders should not be made and that is that the applicant in all likelihood has substantial BFPL records already in his possession. In this regard, BFPL point to evidence that when the applicant left the offices of the company on or about 12 December 2010, he took possession of files and two laptop computers, and the only reasonable inference is that he is now in possession of them. It is noted that despite demands these laptop computers have not been returned to the company. The affidavit evidence of Mr Parihar discloses that those computers at least stored copies of emails sent to the applicant. In all of these circumstances, BFPL submit that it is highly likely already the applicant has many of the documents he seeks and no effort has been made to eliminate such documents from the request now made. 46 By affidavit made by the applicant and filed late in relation to this proceeding, the applicant says that he does not have possession of either of the laptop computers. He says that in December 2010 he discussed with Mr Ramesh Sodum that he would obtain for the applicant items from his office at BFPL as he was departing from Perth that month. He did not receive any laptop computers from Mr Sodum and he does not know where they are. He also says that he did not take with him any documents from BFPL when he left Perth in December 2010, nor did he take with him any laptop computers from BFPL and he has not obtained any such documents or laptops from anybody else upon leaving Perth. 47 In all of these circumstances, given the state of the affidavit evidence before me, I am not satisfied that the laptops or the information identified by BFPL as being in the possession of the applicant are adequately made out. I am not satisfied that the applicant necessarily has information, data or books and records to the extent implied by the submissions of BFPL. Accordingly, I do not consider this additional ground of contention an appropriate one to justify not making the orders sought. 48 BFPL also submits that in circumstances where the applicant has left Australia and apparently has no intention of returning it is incumbent upon him to explain why he is unable to inspect the documents himself and why agents should be appointed to do so. To the extent that the applicant suggests he does not have the necessary skill to read the financial records, BFPL refers to the evidence that shows that the applicant was closely involved in the management of the affairs of BFPL and dealt with complex or sophisticated issues to do with the financing of the company. BFPL submit that the applicant is in reality a sophisticated businessman with a strong command of the financial workings of BFPL and that the Court should readily infer from the totality of the evidence that the real reason why he will not exercise his personal inspection rights is because he has absented himself from Australia, but still wants the benefits of Australian law in this case. 49 Whatever may be the reason or reasons for the applicant's desire to not personally inspect books and records, his absence from Australia does not, in my view, mean he should not, if in all the other circumstances an inspection by agents is appropriate, have the benefit of such an order. I do not consider that the applicant should, in effect, be penalised by his absence from Australia when it comes to inspection. Indeed, this is a case where having regard to the nature of the financial records involved, it would obviously be sensible for the applicant to have qualified accountants or lawyers, such as those he proposes, to conduct any inspection on his behalf. In these circumstances, I would not consider this particular ground of objection to the making of the orders sought to have any weight. 50 BFPL advances a further ground why an inspection order in the terms proposed should not be made, being the failure of the applicant to make a report to the receivers in response to a notice issued upon him by the receivers, pursuant to s 430 of the Corporations Act, concerning a statement as to affairs of the company. BFPL says that the report would obviously be of considerable value to the receivers and that for so long as the applicant remains out of the jurisdiction the receiver has few options to enforce the requirements of the report. Consequently, it is submitted that in weighing the exercise of its discretion the Court should take into account the fact that the effect of an order permitting inspection by agents would have the collateral effect of permitting the applicant to continue to ignore his own obligations pursuant to the Act. 51 Whether or not this "lack of clean hands" point is one that is relevant to the exercise of the discretion I very much doubt. Any failure of the applicant to provide a report as to affairs as requested by the receivers under s 430 is, at least in principle, capable of remedy by other means. I do not take account of this ground of objection. 52 BFPL finally point to evidence that the Australian Taxation Office (ATO) has issued the applicant with a notice of amended assessment citing an amount owing in excess of $30 million and that the notice envisages an appeal process through which the debt will be assessed. BFPL says it is difficult to see how the ATO might advance its case in circumstances where the applicant remains outside the jurisdiction. The notice provides no proper basis for an application to the Court to permit the applicant to remain overseas while his agents inspect the BFPL documents. I have already addressed generally above the question of the absence of the applicant from the jurisdiction. I doubt the relevance of this objection and take no account of it.
rulings 53 Category [4(a)]: The applicant by reference to this category requires inspection of advices, correspondence, memoranda, file notes or financial records relating to the potential or actual sale of assets or shares of either BHL or BFPL created or received since 17 December 2010 by the receivers, that is to say, since their appointment. 54 The evidence before the Court shows that there has been no actual sales of assets or shares of either respondent. 55 In those circumstances s 421 of the Corporations Act has no application as it requires, for example by s 421(1)(b), the payment of monies into accounts that the receivers (as "managing controller") receives within three business days of receipt, and, pursuant to s 421(1)(d) to keep financial records, record and explain all transactions that the receivers enter into as receivers. As there have been no sales of assets, there are no such records. 56 The applicant seeks an order for inspection under the general law right of inspection of a director for the purposes of ensuring the best interests of the company. However, despite the undoubted existence of this general law right of inspection, if there have been no actual sales then there are no records to inspect and an order would be redundant and unnecessary. 57 That, however, leaves the question of inspection of documents as described in relation to the potential sale of assets or shares by the receivers. 58 Given that the pre-eminent role of the receivers is to realise the assets on behalf of the debenture holder, I consider the Court should not facilitate inspection that may threaten the proper administration of the receivership or imperil the assets the subject of the charge by which the receivers have been appointed. 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 whilst 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 in falling generally into category [4(a)]. 64 Category [4(b)]: The applicant by reference to this category seeks inspection of 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 in this Court. In seeking orders to this effect, the applicant relies on the general law right of inspection, s 198F and s 290 of the Corporations Act. 65 In proceeding WAD 66 of 2011, McKerracher J in this Court recently ordered discovery of the documents in this precise category be given by today, 3 June 2011. 66 In these circumstances, it seems to me not merely redundant or otiose that the Court in this proceeding should order inspection of the same documents, but more to the point it would be unduly onerous to require the receivers to provide access to the documents on two separate occasions, for two seemingly separate purposes, when the effect of such an order could only be to unreasonably divert human and financial resources available to them from the pre‑eminent responsibility of realising the assets of the company as well as continuing to operate the business of the company. 67 In these circumstances, I would refuse to make any compliance order in respect of category [4(b)] documents under the Corporations Act. 68 I might also observe that the documents in category [4(b)] are primarily designed to assist the applicant in his defence of the proceeding WAD 66 of 2011. In the circumstances of this case, I do not consider that the applicant has a general law right to inspect such documents as the inspection would not obviously arise pursuant to his duties as a director of the company. I do not consider it can therefore be concluded with any degree of confidence in this case that such an inspection would be in the best interests of the company. To that extent, I would distinguish the circumstances of this case from those of On Q Group Limited ACN 009 104 330 v McDougall [2007] VSC 184; (2007) 25 ACLC 910 where Hargrave J at [30] considered it was just as much in the company's interests as it was in the applicant's personal interest that a dispute concerning his indebtedness to the company be resolved on proper grounds as soon as possible, and so a reason for allowing the director access to documents concerning the disputed indebtedness. 69 Further, to the extent that the inspection of category [4(b)] documents has been sought pursuant to s 198F by an agent of the applicant, I rule that the Court is not empowered to permit such access by an agent under that provision. 70 Category [4(c)]: The applicant seeks access to the books and records under this category that were created or contained information created on or after 17 December 2010, namely, the appointment of the receivers, that relate to any payments made on or behalf of the respondents, including correspondence with potential purchasers of assets of the respondents or shares in BHL and documents and correspondence containing or referring to negotiation between BFPL and the receivers and managers concerning the Harriet Joint Venture, any of the individual parties to the Harriet Joint Venture or any agents or employee of such persons, as well as the general ledger, contracts involving purchases or expenditure greater than $50,000 and documents relating to the proceeding CIV 2329 of 2009 in the Surpeme Court of Victoria. The orders are sought pursuant to the general law right of inspection, s 421(2) and s 290 of the Corporations Act. 71 As to category [4(c)(i)] the receivers acknowledge that primary accounting records relating to any payments made by or on behalf of the respondents, constitute "financial records" as defined by the Corporations Act and should be provided. Section 421 and s 290 of the Corporations Act plainly apply in these circumstances. The receivers say, however, that the request for inspection of these primary accounting records should be read in the context of the request for inspection of other documents, principally the general ledger in (c)(iv). 72 So far as the request for inspection of the general ledger in (c)(iv) is concerned, the receivers have already given the applicant access to this, at least up to recent times and are prepared to provide inspection or access of up to date general ledger information. 73 The receivers suggest that once armed with the general ledger information, the applicant might then identify any primary account records relating to particular payments of which he would like additional inspection. In my view, the position taken by the receivers is practical and sensible and will enable the effectual inspection of the relevant documents. 74 I would therefore formally order inspection of the general ledger identified in category [4(c)(iv)] of the proposed orders as well as of category [4(c)(i)] documents that, following such inspection, the applicant requests inspection of. 75 As to the documents in category [4(c)(ii)], being any correspondence with potential purchasers of assets of either BFPL or BHL or the applicant's shares in BHL, I have already ruled on the substance of this request by reference to category [4(a)] above. In general terms I do not consider that documents falling under the description of category [4(c)(ii)] are part of the "financial record" of the company and so are not affected by s 421 of the Corporations Act. Moreover, I do not consider them to be financial records for the purposes of s 290. While a general law right of inspection of such documents exists, for the reasons given above, I consider that the provision of a right of inspection or access to such documents at this point would unreasonably interfere with, or threaten the assets which are the subject of the receivership that the receivers are currently administering as part of their pre‑eminent role in the receivership. For that reason I would not order inspection of documents in this class pursuant to the general law right of inspection. 76 The documents described in category [4(c)(iii)] are more specifically in relation to documents or correspondence containing or referring to negotiations between BFPL or the receivers and managers and any one or more of the Harriet Joint Venture, any of the individual parties to the Harriet Joint Venture and any agent or employee of the person referred to. I have specifically dealt with this category of documents in relation to the request for inspection in relation to category [4(a)] documents and for the same reasons there expressed would refuse to order inspection of such documents. Plainly such documents are not financial records as defined by the Corporations Act and therefore there is no separate right to inspection or access pursuant to s 421 or s 290 of the Corporations Act. For the reasons given above, I would not order inspection of documents in this category under the general law right of inspection. 77 The applicant also seeks inspection or access to the documents in category [4(c)(v)] being contracts involving the purchases or expenditures greater than $50,000 entered into by the receivers by or on behalf of BFPL. While there may be an argument that the contracts themselves do not constitute a "financial record" as defined by the Corporations Act, they are nonetheless documents that might be provided under the general law right of inspection. In my view, there is no particular difficulty confronting the receivers in providing inspection of the documents in this class. Indeed, through counsel the receivers acknowledge that access can be given and they invite the applicant to make a request for any particular documents he requires. Presumably some of these contracts would be disclosed through entries on the general ledger. 78 In my view, it is appropriate to order inspection of the documents described in category [4(c)(v)] on the basis that the receivers first identify the contracts answering the description given by letter to the applicant, or his solicitor, as soon as practicable and then to provide inspection of those documents (or provide copies thereof) that the applicant then requests. 79 By category [4(c)(vi)] the applicant seeks inspection of documents constituting any hard copy or electronic file maintained by the respondents or the receivers in relation to proceedings CIV 2329 of 2009 in the Supreme Court of Western Australia. This proceeding involves the Harriet Joint Venture litigation between the partners to that joint venture. 80 In my view, documents in this category are not financial records for the purposes of s 421 of the Corporations Act. Nor do they fall within the financial records to which s 290 applies. I consider that while the applicant may have a real interest in files relating to the conduct of the joint venture litigation, it is difficult to see, albeit that he has a continuing status of a director of the BFPL, that inspection or access to such documents is required for him to fulfil his duties as a director of BFPL while the receivers are charged with the effective day to day administration of the company and realisation of its assets. For the reasons already expressed above in relation to documents that may fall into the class of documents relating to the potential sale of assets or shares, I also consider that there is a real risk that the enforcement of general law or statutory access rights to such documents at this point may threaten the receivers' administration and imperil the assets that the receivers are pre‑eminently responsible for realising. For these reasons I would refuse to grant inspection or access to documents falling into category [4(c)(vi)]. 81 By category [4(c)(vii)] the applicant seeks inspection of or access to any documents, including correspondence relating to the determination of the off‑take reference price payable pursuant to an agreement dated 13 December 2002 between Yara Australia Pty Ltd and BFPL. 82 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. 83 Category [4(d)]: The applicant requires inspection of or access to the audited accounts of BFPL from June 2006 to December 2010. 84 BFPL recognise that the applicant is entitled to inspect these documents. 85 There will be an order for inspection of the documents in category [4(d)]. 86 Category [4(e)]: The applicant seeks inspection of or access to documents "evidencing the production profile" of BFPL's ammonia production facility plant generated since 1 January 2010, including print outs, management reports and operational reports. 87 On the evidence before the Court it is unclear whether the documents identified are anything but records of production information, with little or nothing to do with financial information recording. However, I note the applicant says, in [16] of his affidavit sworn 9 March 2011, that in his capacity as managing director of BFPL, he is aware that: (1) the plant operates DCS (digital control system), which is an automated computer system that records data about the plant such as outputs, inputs, expenditure and capacity; (2) BFPL generates "monthly management reports" which are reports to executives prepared on a monthly basis that incorporates summaries of data such as budgets, expenses, sales and profits. 88 I do not consider, based on this description, that the digital control system data records in (1) may be described as "financial records". However, on this evidence, which has not been challenged by the receivers, the monthly management reports referred to in (2) plainly constitute financial records as defined. 89 In all the circumstances, it does not seem to me to be a difficult task for the receivers to provide inspection of the monthly management reports identified in [16] of the affidavit of the applicant sworn 9 March 2011 that have been generated since 1 January 2010 and I would order accordingly. 90 Otherwise, I have difficulty in seeing how such documents can be called relevant to the defence of proceeding WAD 66 of 2011 in this Court or proceeding SCI 2011 02166 in the Supreme Court of Victoria in which the applicant is a plaintiff. Accordingly, I cannot see that s 198F of the Corporations Act has any general application to this category of documents. In any event, as I have ruled, inspection by agents, as proposed, is not something the Court is empowered to order under s 198F. 91 However, there also remains the general law right of inspection by a director. In my view, there is no good reason as to why operational information of the type identified in this category and the financial records should not be provided to the applicant under this right of inspection. 92 Accordingly, I would order inspection of the documents described in [4(e)] of the proposed orders. 93 Category [4(f)]: The applicant seeks inspection of or access to documents generated by the respondents or at the respondent's request by a third party, for the purpose of preparing the prospectus of the first respondent dated May 2008. 94 The receivers acknowledge that third parties or experts were engaged to provide advice in relation to a proposed public offering on the first respondent in or around May 2008. 95 I do not consider that on the face of it, documents falling into this category constitute financial records for the purposes of either s 290 or s 421 of the Corporations Act. 96 However, on the face of it, the applicant is entitled pursuant to the general law right of inspection to have access to such documents, although they should not be left at large as the identification of them by the receivers is likely to require something of a goose chase and be considerably onerous. 97 In that regard, I note that the applicant in [22] of his affidavit sworn 19 April 2011 and filed 4 May 2011 says that a number of experts were engaged to provide advice with respect to the proper valuation of the second respondent and these included accountants, valuers, auditors and capital raising advisors. 98 I would, based on this evidence, order that the applicant be entitled to inspection of and access to the expert reports of those accountants, valuers, auditors and capital raising advisors who provided advice with respect to the proper valuation of BFPL for the purpose of a prospectus produced by the first respondent in about or in the period leading up to May 2008. 99 Category [4(g)]: The applicant seeks inspection of or access to 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 to 31 July 2006. 100 The applicant requires access to such documents for the purposes of the Supreme Court of Victoria proceeding SCI 2011 02166, which the parties generally describe as the cost overrun proceedings instituted by the applicant as plaintiff. 101 It is clear enough that documents falling into this category will be the subject of disclosure or discovery in those proceedings. 102 In my view, it would be redundant and otiose, and at this point of the receivership of BFPL an unnecessary burden that would distract the receivers from their pre‑eminent role in realising the assets of the company, to have to undertake the effective early discovery of those documents when they will be required to be discovered, pursuant to the regime of the Supreme Court of Victoria in due course. 103 For that reason, I would refuse to make a compliance order pursuant to s 198F of the Corporations Act as well as for the reason that the proposed inspection is by an agent, which is not available under s 198F. 104 For the reasons given earlier, I do not consider that access to such documents may be required under the general law right of inspection as I do not consider that, in the circumstances of this case, inspection is necessary for the performance of the applicant's responsibilities and duties as a director of BFPL, and in that sense, it is not necessary to advance the best interests of the company. 105 Undertaking as to cost of providing inspection or access: Finally, there is a question concerning the costs and expenses surrounding the inspection or access to various documents in respect of which I would make compliance orders. The task may be considerable. It is appropriate that the applicant should meet the expense to which BFPL may be put in facilitating inspection or access. In this regard I note that in Geneva Finance the Court ordered inspection of relevant documents upon the filing of a written undertaking, signed personally by the first respondents to cover amongst other things the costs of inspection: see Geneva Finance at 516. 106 The applicant, through his solicitors, has indicated to the Court that he is prepared to meet the reasonable expenses incurred by BFPL in compliance with any orders the Court makes for access to an inspection of documents held by the company and undertakes to meet all reasonable expenses. The applicant's solicitors have advised the Court that they have instructions to propose that this undertaking be secured by way of a payment into their trust account in the amount of $50,000 for payment of such invoices as and when they fall due. 107 I will hear further from the second respondent, BFPL, as to the appropriateness of this undertaking.
Conclusion and orders 108 I would therefore make orders to the following effect:
Oswal
Burrup Holdings Limited
[2007] VSC 184
[2008] VSC 161
[2010] WASC 362
(1992) 7 WAR 496
(2005) 216 ALR 320