Rasley (Singapore) Pte Ltd v Financial & Energy Exchange Ltd

Background 6 An affidavit of Sean Tomlinson was sworn in support of the application. Mr Tomlinson is a director of Rasley. Rasley holds 6 million shares in FEX, which is approximately 0.44% of the total number of issued shares. There is evidence that at the time of its initial investment in 2013, Rasley's shareholding amounted to 3.64% of the total issued shares. 7 Mr Tomlinson's affidavit also refers to a company called Redmont Resources Pty Ltd and its director, Stuart Cuthbert. Redmont supports Rasley's application but is not a party to the proceeding. 8 Mr Tomlinson's affidavit shows that FEX was incorporated in New South Wales in 2006 and has its registered office and principal place of business in Sydney. Its directors are Brian Price, Thomas Price and Bernard Ripoll. It has approximately 1.35 billion shares on issue with a paid up value of approximately $79 million. According to financial reports that are in evidence, FEX's principal activities are the development and operation of financial market infrastructure platforms. An affidavit of Brian Price indicates that FEX intends to operate a market for 'derivatives financial products' and 'is in preparations to commence its revenue generating activities in 2020'. 9 On 28 May 2019 Law Central Legal, acting for both Redmont and Rasley, wrote to FEX saying that its clients were concerned about three issues of shares in FEX. The first two share issues, which took place on 28 June 2017 and 5 April 2018, resulted in 583,583,333 new shares being created in FEX. That nearly doubled the number of shares that were on issue before 28 June 2017. Australian Securities and Investments Commission (ASIC) records indicated that no consideration was paid for the newly issued shares. The third share issue was disclosed to ASIC on 24 October 2018, but the issue itself appears to have taken place on 5 April 2018 as well. It resulted in the issue of 35 million shares, for an amount paid of $0.003 per share. 10 The letter from Law Central Legal also raised concerns about certain alleged related party transactions. The information about them appears to have been drawn from FEX's published financial reports. I will describe the transactions below when I come to consider whether Rasley seeks inspection for a proper purpose. 11 The concerns which Law Central Legal raised about all these transactions can be summarised as twofold. The first was that the share issues substantially diluted its clients' shareholdings in FEX for apparently negligible consideration, with little information on the issues of the shares and without notice to, consultation with or the consent of other shareholders. The second is that the alleged related party transactions did not appear to be in FEX's best interests, not having been done at arm's length, and resulting in directors of FEX increasing their shareholdings in FEX, receiving assets of FEX in the form of shares in other companies, and 'incentive payments' in the form of FEX shares. Once again, it was said that these transactions were entered into without shareholder notice, consultation or consent. 12 Having laid out those concerns, the letter from Law Central Legal then asked a number of detailed questions, and asked FEX to provide Redmont and Rasley with a number of categories of documents. It is not necessary to describe the questions or the document categories. The letter put FEX on notice that if it did not provide the information and documents sought, Redmont and Rasley would seek an order for inspection of company books under the Corporations Act. 13 In response to the letter and the demands it contained, FEX has produced only one document sought - its constitution - and has provided none of the information requested. An email dated 13 June 2019 from Anthony Waller, who appears to be an in house lawyer for FEX, complained that responding to the request from Rasley and Redmont would divert resources from fundraising and the discharge of FEX's statutory obligations 'with particular regards for ongoing solvency'. That is in circumstances where, according to the email, one of Law Central Legal's clients (the email does not say which, but it appears to have been Mr Tomlinson) refused an invitation to visit FEX's office to speak with company officers directly. The email also asked what provision of the Corporations Act required FEX to accede to the information requests. 14 Correspondence ensued which it is not necessary to describe in any detail. It culminated in an email from Mr Waller saying that the directors of FEX had decided that the company would not accede to the requests in Law Central Legal's letter of 28 May 2019. Rasley commenced this proceeding on 16 October 2019. 15 Mr Waller has affirmed an affidavit annexing prior correspondence between persons representing FEX and persons representing Rasley. There were emails sent in January 2019 between Mr Waller and an accountant who appears to have represented Mr Tomlinson. The correspondence appeared to be directed towards setting up a discussion between Mr Tomlinson and Mr Waller about Mr Tomlinson's investment in FEX. In the course of that, Mr Tomlinson sent Mr Waller what he said was the share subscription deed from 2013 that was basis for his investment in FEX. 16 One of FEX's directors, Mr Ripoll, then joined in the email correspondence, asking Mr Tomlinson for and receiving a copy of the 'shareholders agreement'. Mr Ripoll then said in an email that he understood that Mr Tomlinson would be having a discussion around matters raised in other emails to Mr Ripoll (which were not in evidence) and saying that he was sure that all matters would be appropriately dealt with by Mr Waller and FEX. The email thanked Mr Tomlinson for sending the shareholders agreement and noted in particular cl 8.4 of that agreement (which was also not in evidence) and 'the 12 month limitation from the start date of the agreement'. 17 On 16 January 2019 Mr Tomlinson replied to that email (the email chain also including Mr Waller and Brian Price as addressees) saying (with no salutation or signature), 'I will ensure that this company never trades'. Five minutes after that, Mr Tomlinson sent another reply referring to 'the oppressive nature of issuing no cost options to directors which is Oppressive Behaviour under the Corps Act. Very basically fraudulent'. That email said to Mr Waller that there was no point in speaking the next day and that someone called Mark O'Brien would be in touch. 18 Mr Waller's affidavit also annexes subsequent emails between him and Mr Tomlinson in which Mr Tomlinson declined an invitation to meet with Mr Waller in Sydney, saying: At this point I don't believe further direct correspondence with the company would be beneficial and it is clear that regulatory involvement is the only solution to safeguard shareholder interests and actually get this business running. This is based on 6 years of my personal interaction with Brian Price and the fact that the business is no closer to becoming operational than it was when the licence was issued in 2013. I also think it would behoove you (and I mean this with great respect) to ask some tough, specific questions of the Board in your position as General Counsel. The documents, correspondence, notes and conversations I have had with other shareholders indicate some of the most disturbing (and based on my counsel's advice, fraudulent) conduct I have ever witnessed at an Australian company. And being from the Gold Coast originally, I have seen my fair share. 19 Mr Waller's affidavit also annexes emails with another executive of FEX, Margaret Popplewell, which suggest, somewhat equivocally, that Mr Tomlinson may not have attended any annual general meetings of FEX in the past. Brian Price's affidavit says the same thing more forthrightly, on the basis of Mr Price's attendance at every annual general meeting for the company. 20 Mr Tomlinson provided another affidavit explaining his statement that he would ensure that the company never trades was 'merely an exasperated and frustrated response by me to the Defendant's lack of action' and asserting that he wanted FEX to commence trading. The affidavit also sought to explain his decision not to meet with Mr Waller in Sydney by saying he did not believe a meeting would sufficiently address his concerns, he believed that it may have been prejudicial to Rasley's position to conduct such a meeting without having a solicitor present, and that because he lived in Hong Kong it would have incurred cost and a loss of time to attend a meeting in Sydney. 21 This second affidavit was incorrectly sworn, and on that basis FEX objected to its admission into evidence. Mr Tomlinson was in Hong Kong at the time he swore it and it appears for some reason that rectifying the deficiency was not practicable. But I admitted the document into evidence as a hearsay statement rather than as a duly sworn affidavit. I did so because having been included in an affidavit of Rasley's solicitor, and in view of evidence about a medical condition of Mr Tomlinson (at a time when the novel coronavirus was about to be declared a pandemic), the document was subject to the first hand hearsay exception in s 63(2)(b) of the Evidence Act 1995 (Cth) (I gave more detailed reasons at the hearing). It may also have been admissible under s 75 of that Act on the basis that the application was interlocutory in nature. But the authorities are mixed on that point (see Barrack Mines Ltd v Grants Patch Mining Ltd (No 2) [1988] 1 Qd R 606 at 617; contra London City Equities Limited v Penrice Soda Holdings Limited [2011] FCA 674; (2011) 84 ACSR 573 at [11]), I received no argument on the question, and it is not necessary to determine it here. 22 This second affidavit from Mr Tomlinson claims that neither he nor Rasley received notice of recent annual general meetings. Ms Popplewell has also affirmed an affidavit containing evidence suggesting that notices of annual general meetings were sent to Rasley.

Principles 23 It has been held that the precondition to an order under s 247A - that the applicant be acting for good faith and that the inspection is to be made for a proper purpose - is a composite notion which means acting and inspecting for a bona fide proper purpose: Knightswood Nominees Pty Ltd v Sherwin Pastoral Company Ltd (1989) 15 ACLR 151 at 156 (Brooking J); and Mesa Minerals Limited v Mighty River International Limited [2016] FCAFC 16; (2016) 241 FCR 241 at [22(1)] (Katzmann J, Siopis and Gilmour JJ agreeing). With respect, I share the reservations about this approach which Dr Mantziaris has expressed: C Mantziaris, 'The member's right to inspect the company books - Corporations Act, s 247A' (2009) 83 Australian Law Journal 621 at 627. It is hard to reconcile the composite test with the wording of the provision, which requires in a general way that the applicant is 'acting in good faith' and applies the requirement of proper purpose to the inspection itself. But I also share Dr Mantziaris' view that this is unlikely to be a matter of much practical import. It may mean no more than that a finding of lack of proper purpose for the inspection will impact on whether an applicant is acting in good faith, and vice versa. In any event, the combination of those two requirements, coupled with the discretion that arises if they are satisfied, empower the court to deal appropriately with the varied combinations of circumstances that will be encountered in practice. 24 It is clear that the words 'proper purpose' mean a purpose reasonably connected with the proper exercise of the rights of a shareholder as a shareholder, as opposed to a purpose connected with some other interest, such as an interest as a bidder under a takeover scheme, or as a litigant in proceedings against the company: Knightswood Nominees at 156-157; Cescastle Pty Ltd v Renak Holdings Ltd (1991) 6 ACSR 115 at 118; and Hanks v Admiralty Resources NL [2011] FCA 891; (2011) 85 ACSR 101 at [32(3)]. In contrast, a purpose which is unrelated to the applicant's status as a shareholder (for example idle curiosity), inherently improper (for example harassment or blackmail), or both (for example sharing confidential information with a competitor of the company) would not establish good faith and proper purpose: see Knightswood Nominees at 156. However, it has been observed that in this context, 'improper' means simply a purpose for which the courts would not extend assistance in an application under the section: Barrack Mines at 613 (Andrews CJ, describing on appeal with apparent approval the view of the trial judge). 25 The onus of proof is on the applicant: Praetorin Pty Ltd v TZ Ltd [2009] NSWSC 1237; (2009) 76 ACSR 236 at [36]; and Mesa Minerals at [22(3)]. An applicant who has a significant holding and who has been a shareholder for some considerable time will discharge the onus more easily than one who has recently acquired a token holding: see Quinlan v Vital Technology Australia Ltd (1987) 5 ACLC 389 at 393. 26 Section 247A is remedial legislation which significantly liberalises the pre-existing law: Unity APA Ltd v Humes Ltd (No 2) [1987] VR 474 at 478; and Barrack Mines at 616. It is now clear it does more than just restate or clarify the principles of the common law: Claremont Petroleum (NL) v Australian Gas Light Company [1990] 2 Qd R 31 at 33-34; Rowland v Meudon Pty Ltd [2008] NSWSC 381; (2008) 220 FLR 362 at [35]; and London City Equities at [37]-[38]. The legislation confers a broad discretion on the court, extending to consideration of what the court ought to require the company to tell its shareholders, not just what the company has a legal duty to tell its shareholders: Rowland v Meudon at [41], quoted with approval in Smartec Capital Pty Ltd v Centro Properties Ltd [2011] NSWSC 495; (2011) 83 ACSR 461 at [68]. 27 On the hearing of an application under s 247A, the court should not determine any substantive questions and should not attempt to do so: Knightswood Nominees at 153; Intercapital Holdings Ltd v MEH Ltd (1988) 13 ACLR 595 at 601-602; London City Equities at [12], [29]; and Hanks at [32(6)]. Consistently with that, it is not necessary that an applicant for inspection have sufficient evidence to bring a proceeding or establish liability in relation to its concerns. It is enough if the issue raised by the applicant is substantive and not fanciful, artificial, specious or contrived: Praetorin at [40]; and Style Limited, in the matter of Merim Pty Ltd v Style Limited [2009] FCA 314; (2009) 255 ALR 63 at [66]-[67]. The authorities frequently describe the standard of concern that must be reached in order to establish the necessary good faith and proper purpose as the existence of a 'case for investigation': e.g. Intercapital at 602; and Mesa Minerals at [26], [54]. This emphasises the need for an objective basis for intervention: Praetorin at [39]. In Intercapital at 601 Brooking J expressed the question as whether a reasonable shareholder could take the view that its investment in the company may be adversely affected by a transaction and wish to investigate whether it should take steps with a view to protecting the investment. In Smartec Capital at [65] Barrett J accepted a submission that 'the criterion expressed by the words "in good faith" and "for a proper purpose" are not confined by reference to some cause of action or legal wrong and are, on their face, at large'. 28 The infinite variety of situations that will be encountered in practice means is neither possible nor appropriate to seek to describe any rule that will determine when a case for investigation of this kind is, or is not, made out. It can be said, however, that the cases demonstrate that more than curiosity or general suspicion of a company's management is required. An applicant must at least be able to articulate a basis on which it might be found that illegal, improper or otherwise undesirable conduct has occurred. In Praetorin at [64]-[65] Barrett J accepted a submission to that effect, agreeing with counsel that it is not enough for an applicant to say that it 'just wanted to check it out that no-one had done anything wrong, because I have a circularity problem and I don't know what I don't know'. Gordon J applied this passage in Hanks at [39]. 29 Cases where applications have been granted are consistent with that approach. For example, in Unity APA v Humes inspection was granted in relation to a proposed acquisition by a company which was so substantial as to require the company to nearly double its share capital after issuing shares as consideration for the acquisition, the effect of which would arguably be to give control of the company to the vendor, where a large amount of the purchase price was calculated by reference to goodwill and capitalised earnings (see 475-476). In Cescastle a public company had advanced funds to another company controlled by four of the five directors of the public company and the auditors had expressed doubt about the recoverability of the advance (see 116), which according to Young J (at 118) 'cries out for investigation'. In Hanks there were specific reasons provided for thinking that the directors had accepted an offer to sell a controlled entity, which would effect a significant change to the scale of the company's activities, without properly considering a competing offer that had been made. In Smartec Capital, an ASX listed company had announced that securityholder approval would be needed for disposal of the company's main undertaking, but then later announced that securityholder approval for the transaction would not be required, leaving an applicant, in Barrett J's words, 'understandably distrustful' (at [80] and see [43], [78]-[81]). 30 It has been said that the rights provided by statutory predecessors to s 247A should not be regarded as affecting the basic rule of company law that a shareholder should not ordinarily have recourse to the courts to challenge a managerial decision made by or with the approval of the directors: Re Augold NL [1987] Qd R 297 at 308; Barrack Mines at 613-614; Cescastle at 117 (although see the suggestion on the same page that the statutory provision 'cuts across' the rule); Unity APA v Humes at 478-479; and Acehill Investments Pty Ltd v Incitec Ltd [2002] SASC 344 at [29(5)]. Whether or not the 'basic rule' at common law remains intact, concern about a management decision is clearly capable of animating a proper purpose within the meaning of the section: see London City Equities at [37]-[38], relying on Smartec Capital at [65] and Claremont Petroleum (NL) v Australian Gas Light Company. In Knightswood Nominees at 157, Brooking J observed that an applicant may seek to show 'at least a case for investigation as regards past or future wrongful or other undesirable conduct'. 31 Hostility to the company's management does not necessarily mean that an applicant lacks a proper purpose: Unity APA v Humes at 479-480. Even if the applicant is motivated by a purpose that is improper in the sense described above, the statutory precondition may still be satisfied if a proper purpose to support the purpose is the dominant purpose: Unity APA v Humes at 480; and Barrack Mines at 613. It seems to me, however, that if a purpose is improper in a stronger sense, it may be hard to demonstrate that the applicant is acting in good faith, even if it is not the dominant purpose. It is impossible to apply a precise calculus in relation to such concepts and each case will depend on its own facts. 32 Neither the fact that an applicant may have had sufficient information earlier, nor the fact that an applicant may have other means of obtaining the information, is detrimental to an application under the section: Mesa Minerals at [22(11)]. In my view, that should be understood as a general principle to the effect that there is no requirement for an applicant to pursue or exhaust other avenues of obtaining information before turning to s 247A: see McNeill v Hearing & Balance Centre Pty Ltd [2007] NSWSC 942 at [23]-[25], on which the statement in Mesa Minerals is based. I do not think that it excludes the possibility that, on the particular facts of a case, a refusal to take information proffered by the company, or the pursuit of inspection of documents the applicant can easily get elsewhere, may support a finding of bad faith or improper purpose. 33 Such matters could also be relevant to the exercise of the discretion; even if an applicant is acting in good faith and seeks inspection for a proper purpose, the court has a discretion about whether to order inspection, and if so on what terms: Mesa Minerals at [22(13)]; and Unity APA v Humes at 481. For example even if a case for investigation of 'undesirable conduct' is made out, that may not be enough to justify the making of the order as a matter of discretion: see Knightswood Nominees at 157. In relation to management decisions a conservative approach to the exercise of the discretion is appropriate: Rowland v Meudon at [41]. 34 If the Court makes an order under s 247A, the Court may make any other orders it considers appropriate: s 247B. These may include an order limiting the use that a person who inspects books may make of information obtained during the inspection, and an order limiting the right of a person who inspects books to make copies in accordance with s 247A(2). 35 It is necessary to comment further on one aspect of the principles arising under s 247A. In Acehill (at [29(1)]) Debelle J said that the court will determine whether the necessary good faith and proper purpose have been demonstrated by applying an objective test. This has been quoted or repeated in subsequent cases: e.g. Hanks at [31]; and Mesa Minerals at [22(2)], and so is established law. 36 There is, however, little exploration in the authorities of what it means to say that the test is objective in this context. Certainly, the question of whether there is sufficient substance behind a concern to make the purpose of inspection a proper one must be determined objectively: see [27] above. But that cannot mean that all subjective evidence is irrelevant and inadmissible There are numerous instances where courts have treated as relevant direct evidence of the state of mind of an applicant in seeking inspection: see e.g. Mesa Minerals Ltd at [44]; Re Augold at 303; and Re Tolco Pty Ltd [2016] NSWSC 1069 at [20]. In Leadenhall Australia Pty Ltd v Cape Lambert Resources Ltd [2018] FCA 558; (2018) 125 ACSR 484 at [56], Charlesworth J reconciled the position as follows: Mr Lebbon's subjective purposes are a question of fact, to be determined by reference to his affidavit evidence. It is the propriety of Mr Lebbon's actual purposes that are to be objectively assessed, not the propriety of other unarticulated purposes for which a shareholder in his position might otherwise seek to inspect Cape Lambert's books. Mr Lebbon has not alleged that he subjectively intends to investigate a case with no apparent end in mind. Rather, the affidavits disclose a desire to conduct an investigation into the relationship between Mr Sage and Gulf Energy as a means of achieving a specified legal and financial result. 37 In the present case, while counsel for both parties agreed that the test was objective, the question of Rasley's subjective purpose in seeking inspection was hotly contested. I will proceed on the basis that evidence about that purpose is relevant and admissible.

Has the statutory precondition been satisfied in this case? 38 Rasley's application stands or falls on s 247A. While, as I have said, the application was also put on the basis of common law principles, counsel for Rasley correctly conceded that if his client did not succeed under the statute, then it could not succeed at common law. So there is no need to consider the latter. 39 There is no doubt that Rasley is a member of FEX, who is therefore entitled to apply for an order authorising it to inspect books of the company. Rasley initially put its application on the basis of s 247A(3) as well as s 247A(1). Section 247A(3) entitles persons eligible to apply under s 237 for leave to bring derivative proceedings to seek an order under s 247A(4) for inspection of books. However counsel for Rasley ended up accepting that reliance on s 247A(3) or s 247A(4) was unnecessary, so there is no need to consider them either. 40 Redmont is not an applicant and is not a member of the company. Mr Tomlinson's first affidavit contains hearsay evidence that a company called Megabay Holdings Pty Ltd holds shares 'on bare trust' for Redmont. While that evidence was admitted without objection, it does not mean that Redmont is a member, because it could only relevantly be so if its name were entered on the register of members: Corporations Act s 9 definition of 'member' and s 231(b). The statutory precondition therefore cannot be satisfied by reference to whether Redmont is acting in good faith and has a proper purpose. Redmont's intentions might conceivably be relevant to the exercise of the discretion, but in my view, the principles I have described at [24] above mean that the discretion will not arise unless it is established that Rasley is acting in good faith and for a proper purpose in connection with its position as a member, that is, in respect of Rasley's shareholding. 41 In his first affidavit, Mr Tomlinson effectively adopts the contents of Law Central Legal's letter to FEX of 28 May 2019. He says that 'as a shareholder in FEX' he has the concerns about the share issues and alleged related party transactions which are identified in the letter, he would like answers to the questions asked in the letter, and he would like to see documents set out in the letter. 42 The facts and the parties' respective cases raise two issues of substance in relation to whether Rasley is acting in good faith and seeking inspection for a proper purpose. The first is whether the concerns expressed in Law Central Legal's letter of 28 May 2019 have sufficient basis to say that seeking inspection of them is for a proper purpose. For reasons I have explained, this is an objective question. The second issue is whether the email correspondence mostly contained in Mr Waller's affidavit to which I have referred means that Rasley should be found not to be acting in good faith and seeking inspection for a proper purpose. That is about Rasley's subjective intentions. Describing two issues in that way does not mean that they are independent of each other. For example, if the purpose for inspection of documents proves to be well founded, that may support a finding that Rasley is acting in good faith. 43 It is necessary to assess the first issue by reference to each of the transactions which is said to be the subject of concern. It is convenient to assess the transactions in three groups: the share issues, the related party funding and option agreements, and the lease.

Share issues 44 I have already given a brief description of the share issues. According to a form dated 28 June 2017 which FEX lodged with ASIC, on that day FEX issued 150 million shares. The amount paid per share is shown as nil. So is the amount unpaid per share. The 'earliest date of issue' shown on the form is 3 June 2017, so the issue took place in June 2017. The issue of 150 million shares took the total issued capital of FEX to 880,961,286. The newly issued shares therefore added some 20% to the number of shares of the company. 45 There is a similar ASIC form in evidence notifying a share issue which seems to have taken place on 5 April 2018 (and another form correcting an error in the previous form). The number of shares issued then appears to have been 433,583,333. Once again, according to the form the amount paid per share and the amount unpaid per share are both nil. 46 Finally, there is another form showing another share issue, apparently also on 5 April 2018. This time the amount of shares issued was 35 million. The amount paid per share (presumably in dollars) was 0.003. 47 The two issues of shares on 5 April 2018 increased the total number of shares on issue by approximately 53%. Between 3 June 2017 and 5 April 2018, then, the total number of issued shares seems to have increased by approximately 85%. The holdings of any existing shareholders who did not participate in the new issue were thus diluted by a corresponding amount. 48 The ASIC form does not seem to provide space for any other information about the issue, such as its purpose or to whom the shares were issued, and the above forms as lodged contain no further information of that kind. 49 There is little evidence about the true value of shares in FEX. It is not listed on any stock exchange. The financial statements in evidence show ongoing losses and a deficiency of assets over liabilities. But it seems that the company was, at that time, still attempting to commercialise its trading platform or platforms, so such poor financial results do not permit one to conclude with any confidence that shares in the company had no value. An extract of the register of members is in evidence showing that the amount paid per share for Rasley's shareholding was 50 cents. According to the financial report for the year ended 30 June 2016, convertible notes issued during that financial year also had a conversion rate of $0.50 per share. 50 Conversely it is not clear that the paid amounts shown on the ASIC forms are the prices paid by issuees of the new shares. The references on the forms to 'amount paid per share' and 'amount unpaid per share' appear to be references to the kind of information which s 169(3) of the Corporations Act requires to be entered on the company's register of shares, which includes: (ea) the amount paid on the shares; and (eb) whether or not the shares are fully paid; and (f) the amount unpaid on the shares (if any). 51 This does not enable conclusion to be drawn from the forms about whether the new shares were issued at less than their true value. But the forms and the other figures set out above are all that the court and, on the evidence, all that Rasley has to go on. FEX has not attempted to provide any explanation of the numbers, shedding light on either the true issue price or other consideration given for the shares issued in 2017 and 2018, or their true value. While counsel for FEX indicated that the issues reflected in the ASIC forms were all addressed in the annual financial reports, he was unable to describe how the two sources corresponded with each other, and that correspondence is not apparent on their face. For example, while FEX's financial report for the year ending 30 June 2018 does show that 468,583,333 shares were issued during that year, that being the same number of shares covered by ASIC forms that were lodged in 2018, the consideration for those shares shown in the financial report does not correspond to the amounts paid shown in the ASIC forms. 52 In my view this evidence makes out a case for investigation of the share issues. A shareholder seeking to inspect documents to find out more about a transaction which, on the face of the limited material available, effected a substantial dilution of its shareholding, potentially in return for small or nil consideration, is seeking inspection for a proper purpose reasonably connected with its shareholding.

Alleged related party funding agreements and option agreements 53 Rasley says it is concerned about a number of related party transactions that are disclosed in FEX's annual reports.

Loans to FEX from Financial Market Infrastructure Fund Pty Ltd (FMI) 54 Brian Price is a director of both FEX and FMI and, it is said, indirectly owns a majority of shares in FMI. There was a long term loan from FMI which at the time Law Central Legal's letter totalled approximately $12 million. There is evidence that as at 30 June 2015 FEX owed FMI $3,784,177 pursuant to the loan, at an interest rate of 13% per annum. In subsequent years the interest rate appears to have dropped to 7%. 55 There were also a number of 'funding agreements' which were shorter term and therefore needed to be extended (or paid out) regularly. Law Central Legal's letter asserted that they were extended, and that each time this occurred FMI received shares in FEX as consideration for the extension. The face value of the shares issued for those reasons was approximately $2.9 million. Rasley says that it is not apparent how these shares were valued and how many shares were actually transferred. 56 FEX says that the financial reports give answers to whether the company has entered into agreements disposing of corporate assets of value for what consideration. But while the financial reports do provide some details of the loans made to FMI, they do not explain how the shares given in consideration of the loan extensions were valued nor how many were actually transferred.

Convertible note agreement between FEX and FMI 57 FEX appears to have issued a convertible note to FMI in 2016, in substitution for $15 million which FEX owed to FMI. FMI is said to have received shares valued at $714,000 as consideration for taking the convertible note, and to have received further shares worth approximately $336,000 in return for extending the term of the convertible note. Rasley reiterated its concern that it is not apparent how these shares were valued and how many shares were actually transferred.

Options concerning shares in certain companies 58 There was a put option entitling FMI to compel FEX to acquire shares in which FMI held in a company called NSX Ltd. FEX had the right to direct the votes attached to those shares pending exercise of the option, but it was required to pay interest for 'holding costs'. 59 On 26 October 2015, FEX issued shares with a value of $775,000 in consideration for FMI foregoing its right to exercise the put option. On the same day, FMI and FEX entered into put and call options over shares in NSX and shares in another company, SIM VSE Group Holdings Ltd, which FMI and FEX respectively held. The put option entitled FMI to compel FEX to acquire the shares in those companies which FMI held. The call option entitled FMI to compel FEX to sell it the shares in those companies which FEX held. It appears that FMI exercised the call option on 18 April 2016, paying FEX over $9 million for shares in the two companies.

Option agreements over shares in NSX Ltd which FEX entered into with Iron Mountain Pty Ltd 60 As with FMI, Brian Price is a director of Iron Mountain and is said to be its indirect majority shareholder. There were put and call options over NSX shares held by Iron Mountain, which terminated on 15 December 2014. On the same day FEX and Iron Mountain entered into a put option entitling Iron Mountain to compel FEX to buy shares in NSX. Under this agreement, FEX was required to pay Iron Mountain 13% interest on holding costs, although it appears from the 2016 financial report that no such interest was accrued or has been paid. That second option terminated on 26 October 2015.

Option agreements over shares in NSX which FEX entered into with Exchange Technology Investments Pty Ltd (ETI) 61 ETI is another company of which Brian Price is a director and of which he is said to be the indirect majority shareholder. There were put and call options in relation to shares in NSX which ETI held, with 13% interest on holding costs payable by FEX. This terminated on 15 December 2014. There was also put option in relation to ETI's shares in NSX, with the same 'holding costs', which terminated on 26 October 2016. It appears from the 2016 financial report that no such interest was accrued or has been paid.

A loan by West Star Options Pty Ltd to FEX and fees paid to West Star Options 62 Thomas Price, a director of FEX, is the sole shareholder and director of West Star Options. As at 30 June 2015 there was a loan from West Star Options to FEX in the sum of $714,478, at an interest rate of 10%. The financial reports also record fees of $600,000 paid to West Star 'on sale of NSX shares'.

Fees paid to Belgian Capital Pty Ltd 63 These were just under $500,000 and were paid in the financial year ending 30 June 2016. During that year, Ann Bowering was a director of both Belgian Capital and FEX and a 50% shareholder in Belgian Capital.

Whether inspection of documents related to these transactions is a proper purpose 64 I do not consider that this limited evidence makes out a case for investigation. It is not enough that there is a loan or option to or from a related party. Related party transactions with public companies are not necessarily unlawful. There is no need for shareholder approval if the transaction is on terms that would be reasonable in the circumstances if the public company and the related party were dealing at arm's length, or are less favourable to the related party than those terms: Corporations Act 2001 s 210. 65 In circumstances where FEX was at the relevant times developing a business that was not yet earning revenue, it is understandable that it would rely on directors and other related parties for funds. It also needs to be acknowledged that the source of Rasley's knowledge of the loan is FEX's annual reports published to shareholders. These transactions are disclosed in sections of the financial reports devoted to related party transactions. The sections commence by saying that the transactions between related parties are on normal commercial terms and conditions no more favourable than those available to other parties unless otherwise stated. The financial reports are the subject of unqualified audit reports. That is not to say that the existence of such audit reports are proof that the related party transactions were on arms' length terms. History is littered with examples to the contrary. But in circumstances where the need for such related party transactions is evident, I consider that to question the legality or propriety of the transactions does not rise above speculation. 66 Rasley made a number of submissions by which it attempted to strengthen the bases for its concerns beyond that insubstantial level. One was what its counsel referred to as a 'basic principle of evidence' that 'evidence is to be judged according to the ability of the party to prove it and the other party to disprove it. We are on the outside looking in …'. But I consider, with respect, that this is the same argument which Barrett J indicated could not be accepted in Praetorin: see [28] above. The fact that a shareholder who is not affiliated with management does not have much of the information to which management are privy cannot, by itself, mean that there is a matter requiring investigation. 67 Rasley also submitted that the existence of the more concrete concerns it had formed in relation to the share issues (see above) and the leases (see below) raises the possibility that there are other transactions that are uncommercial. But this is, with respect, putting too much weight on the concerns raised in respect of those other transactions. All that has been established in relation to them is a case for investigation; no basis has yet been demonstrated to conclude that the transactions are not commercial. I do not consider that they provide a foothold for the case that the funding and option transactions may be uncommercial. 68 Rasley submitted that the interest rate on some of the loans of 13% seems unusually high, but there was no evidence to support that submission. An interest rate of that amount may have been appropriate in circumstances where the money was being loaned, probably unsecured (there being no mention of security in the financial reports), to a company with no revenue-earning business and a deficiency of assets over liabilities. 69 Rasley submitted that the question should be framed in terms of whether there is anything improper about the request for inspection, or 'is this the kind of information that it's fair enough for a shareholder to want to know?' But on the basis of the principles I have discussed above, I do not accept that it is correct to put the question that broadly.

Leases of premises with FMI as lessor and FEX as lessee 70 There is evidence in the annual reports suggesting that during the period 1 July 2015 to 30 June 2017, FEX paid rent to FMI. However no lease in respect of those years is available to Rasley. The financial reports show that the amount that FEX paid FMI for rent during that period was $678,599 (exclusive of outgoings). 71 There is also a lease in evidence between FMI as landlord and FEX as tenant which commenced on 1 October 2017. The leased premises are Lot 3, 11 Bridge Street, Sydney. The starting rent was $388,356.81 with an annual increase of 3%. The annual report for the year ending 30 June 2018, however, shows payments of $850,912 for 'amounts in Trade Creditors regarding Rent of Premises from FMI'. From FEX's 2019 financial report it appears that this may be a cumbersome way of saying 'rent', but it is not clear how this amount corresponds to, or includes, the starting rent under the lease of Lot 3. 72 Rasley says that it is concerned about whether the rent that FEX is paying to FMI is a fair market rent. Its concern is based, in part, on evidence that FEX is also the tenant of adjoining lots where it is paying the lessors, apparently unrelated third parties, approximately 30% less per square metre. 73 There may be good reasons for the differences in rent. Different commencement dates of the respective leases might explain it, or it could be linked to different characteristics of the respective premises. But in the absence of any evidence about those matters, I am satisfied that it would be a proper purpose for Rasley, as shareholder, to seek inspection of documents that may shed light on whether FEX is paying above market rent to a company associated with one of its directors. While there is no direct evidence that the rent being paid before the 2017-2018 financial year is less per square metre than rent for adjoining premises, the annual amounts paid for rent in those earlier years, as disclosed in the financial reports, are roughly comparable to the base rent under the lease of Lot 3 that is in evidence, and so I consider that it would be a proper purpose for a shareholder to seek inspection of leasing documents pertaining to that earlier period as well. 74 It is true that the financial statements disclose at least some of these rent payments and they say that the rents are at 'commercial rates (excluding out goings)'. As I have said, these annual reports are audited. But, unlike the other transactions noted above, Rasley has presented a concrete basis for suspecting that, despite the auditor's apparent opinion, FEX may have been paying above market rent to FMI.

Is Rasley seeking inspection in good faith and for a proper purpose? 75 I am satisfied that investigation of the share issues and the lease from FMI are proper purposes for inspection. Mr Tomlinson's first affidavit effectively states that these are his purposes 'as a shareholder in FEX'. 76 Other than the bare statement that he is a director of Rasley, there is little evidence about the management structure of Rasley to shed light on whether he is authorised to act on behalf of Rasley, or whether his state of mind should be attributed to the company. There is a Singaporean companies register document in evidence suggesting that there is one other director. Nor is there any evidence as to whether Singaporean law affects the way in which such questions might be answered, given that Rasley is incorporated in that country. 77 Nevertheless, FEX did not take any point about whether Mr Tomlinson's state of mind should be attributed to Rasley. So in those circumstances, and in circumstances where the correspondence between the parties appeared to proceed on the basis that Mr Tomlinson acted on behalf of Rasley, I am prepared to infer that his state of mind should indeed be attributed to Rasley. The fact that in his first affidavit he refers to himself and not Rasley as the shareholder in FEX tends to confirm that inference, albeit in a conclusory way. 78 FEX does, however, raise a number of other matters in opposition to the order sought by Rasley. 79 First, FEX refers to the relatively small percentage of shares in FEX which Rasley holds: approximately 0.44%. It submits that this goes against a finding that the application has been made in good faith for a proper purpose. That submission was made in reliance on Mesa Minerals at [22], [38]-[39], which in turn cited Quinlan (see [25] above). However the focus in the latter case was on the fact that the applicant had recently acquired a small holding in the company for the avowed purpose of bringing a derivative action on behalf of shareholders. Here, Rasley has held its shares since 2013. Its holding of 6,000,000 shares at an amount paid per share suggests a substantial investment of $3,000,000 and if that figure is incorrect, FEX has adduced no evidence to that effect. In short, there is no basis to allege (and FEX did not allege) that Rasley is engaging in greenmail, which is the concern which often underlies discussion of small recently acquired shareholdings in this context. 80 Plainly, the size and duration of the applicant's shareholding cannot be determinative. In Hanks Gordon J made orders permitting inspection by a shareholder who held 0.00005% of the issued capital, valued at approximately $1,710, in the relevant company where the shares had been held for a little over three months before the applicant first raised the concerns that led to the application. In Smartec Capital Barrett J made orders in favour the holder of 0.4854% of the stapled securities on issue. I do not consider that the size of Rasley's shareholding provides any basis to think that it is not acting in good faith and seeking inspection for a proper purpose, particularly in a situation where its application is brought on the basis of concerns about large share issues which have substantially diluted its shareholding. 81 Another basis of FEX's opposition is that it says that Rasley is seeking to challenge management decisions. But while FEX relies on its constitution, vesting the management of the company in the directors, and a specific authorisation to the managing director to negotiate injections of capital, those matters are not to the point. As indicated at [30] above, concerns about management decisions can appropriately found an application under s 247A. That being so, any debate about whether particular issues arise from management decisions or some undefined category of non-management decisions would be arid. The two matters which I have identified as giving rise to a proper purpose for inspection - the share issues and the lease from a related party - are matters with sufficient connection to Rasley's shareholding, the value of its investment, and the governance of FEX, as to make them legitimate subjects of inquiry for a shareholder. 82 FEX relied on the following passage from the judgment of McPherson J in Re Claremont Petroleum NL (No 2) [1990] 2 Qd R 310; (1990) 2 ACSR 84 at 314 (about s 265B of the Companies (Queensland) Code, a statutory predecessor to s 247A of the Corporations Act): I therefore consider that in many circumstances a shareholder ought not to be assisted by an order under s. 265B to examine decisions of directors, or the reports or records leading to those decisions; but I think that in a case like this he is entitled by inspection of books to find out what the results of those decision are; that is to say, whether the company has entered into agreements, and with whom, disposing of corporate assets of value, and for what consideration, and what has happened to those assets or the consideration given in return for them. 83 FEX submitted that Rasley already knows from the financial reports what the results of the management decisions are. But I do not consider that McPherson J was giving some inflexible list of what an applicant is entitled to know about a transaction. It may be that simple disagreement with a management decision is not enough (see Re Augold NL at 308) but Rasley's concerns go beyond that. It depends on the facts of the case and for reasons I have given, Rasley is entitled to look further into the share issues and the lease from FMI. 84 The third main basis of FEX's opposition to the application is that Rasley is not making the application in good faith and for a proper purpose. FEX points to Mr Tomlinson's conduct in declining Mr Waller's offer in January 2019 to speak to him about his concerns. It says that Mr Tomlinson's explanation for why he declined to meet is not credible. That explanation, contained in Mr Tomlinson's second (irregularly sworn) affidavit, was that he believed that a meeting would not address his concerns and he had not instructed a solicitor at the time and believed it would be prejudicial to Rasley's position to meet without a solicitor present. He also refers to the time and cost of attending a meeting in Sydney (although Mr Waller had offered to do it by a Skype call). 85 FEX's submissions focussed on Mr Tomlinson's statement in his first email of 16 January 2019 that he 'will ensure that this company never trades'. It says that Mr Tomlinson's explanation of the threat as being the product of exasperation and frustration, and his statement that he wishes FEX to commence trading, are not credible in view of Rasley's minor shareholding and its foreshadowing, in correspondence from Law Central Legal, of an application to wind up FEX. 86 I do not accept these submissions. For one thing, FEX made no application for leave to cross-examine Mr Tomlinson on his true motivations. That at least undermines the confidence the court can have in coming to a serious conclusion of that nature, and may make it unfair to Mr Tomlinson and Rasley to come to that conclusion. I do not consider that it was open to FEX to put Rasley's good faith or proper purposes in issue in that way without confronting Mr Tomlinson in cross-examination: see Re Combined Projects (Arncliffe) Pty Ltd [2018] NSWSC 649 at [18]. 87 In the absence of cross-examination, I consider on all the evidence that has been adduced that Mr Tomlinson's explanation of why he said that he will ensure that the company never trades should be accepted. The emails from Mr Tomlinson's accountant which commenced discussions about the possible meeting with Mr Waller said that the investment had been frustrating for Mr Tomlinson 'as he was informed it would not take so many years to get where the company is today'. Why Mr Ripoll's email about the shareholders agreement provoked such asperity from Mr Tomlinson is not clear on the evidence, but in context of the previously expressed frustration, the court can only conclude that it was an expression of pique, rather than, say, evidence of an ulterior plan to destroy FEX of which the present application forms a part. That first reading tends to be confirmed by the email Mr Tomlinson sent five minutes after the first one, in which he raises concerns of oppression and fraud and says to Mr Waller that there is no point in talking tomorrow. That email is further evidence that Mr Tomlinson was frustrated about his investment and concerned with the conduct of FEX's directors, and that he had made his threat because of those feelings. That is further confirmed by Mr Tomlinson's email of 24 January 2019 to Mr Waller (quoted at [18] above) sent when, it can be inferred, Mr Tomlinson had had time to calm down. 88 Mr Tomlinson's threat in his first email of 16 January 2019 demonstrates an angry, perhaps spiteful, attitude towards FEX, and does not reflect well on him. But anger and hostility do not by themselves necessarily preclude the making of an order under s 247A: see Cescastle at 117-118. There is no basis in the evidence to find that the present application is designed to somehow prevent FEX from commencing trading. For example, despite the mention of solvency in Mr Waller's email of 13 June 2019 (see [13] above), there is no evidence that the costs associated with the proceeding have caused or will cause financial stress for FEX. 89 As I have said, there was also evidence suggesting that Mr Tomlinson had never attended an annual general meeting of FEX. FEX relied on this, although it was not clear whether it was because it suggested that Mr Tomlinson was not really interested in the investment, or because it showed he had eschewed other avenues to obtain information, or both. Either way, I do not place any weight on this evidence. The omission by a shareholder based in Hong Kong to attend annual general meetings in Sydney hardly needs explanation. And, as I have said, the cases indicate that a failure to take advantage of other avenues to obtain information will generally not be to the detriment of an application under s 247A. The same may be said of Mr Tomlinson's refusal to meet Mr Waller. That may also have been a product of frustration and spite. It may have been unwise. But it is not evidence of an improper purpose or lack of good faith. 90 As for the mention of winding up in Law Central Legal's letter, this was but one of a number of possible remedies which the firm gave as examples of remedies that their clients would consider pursuing depending on what the inspection of documents revealed. Other examples given were actions for breach of directors' duties and oppression proceedings. All of those remedies could, conceivably, be appropriate for a shareholder to seek depending on the degree and significance of misconduct, if any, revealed by the inspection. Whether Rasley's purpose is judged objectively or subjectively, I do not consider that the mention of winding up proceedings in the letter supports an inference that Rasley seeks inspection in order to bring a liquidation about. 91 On all the evidence before the court, and in the absence of any attempt to cross-examine Mr Tomlinson, I find that his true motives were to investigate concerns he had about his investment in FEX. That these motives may have been mixed with hostility towards FEX's directors does not mean that Rasley's dominant purpose is outside the proper scope of an application under s 247A. In my view, Rasley has established the precondition to an exercise of power under s 247A(1), that it is acting in good faith and that the inspection is to be made for a proper purpose, albeit only in relation to the share issues and the leases.

Should the discretion be exercised in favour of ordering inspection? 92 There are three questions relevant to the exercise of the discretion to order inspection: should inspection be ordered at all, if so of what documents, and by whom?

Should inspection be ordered at all? 93 Counsel for Rasley relies on the correspondence between the parties as showing that FEX was 'stonewalling' and says that is relevant to the discretion. But with respect it difficult to see why. While FEX has certainly been unforthcoming, I do not consider that this rises to a level of obstruction that would, for example, support an inference that the company has something to hide. 94 Nevertheless, here Rasley has established that it seeks inspection of documents in relation to the particular transactions I have identified for a proper purpose and is acting in good faith. No specific reason having been shown for why the discretion should not be exercised in its favour in those circumstances, it is appropriate to make an inspection order.

What documents may be inspected? 95 FEX submitted that the descriptions of the categories of documents sought to be inspected are too wide and are indeterminate. For example, Rasley seeks '[a]ll documents relating to' each of the share issues it wishes to investigate. I agree with FEX's submission in that regard. The scope of the documents to be inspected must be reasonably related to the concerns that Rasley has raised and an order for all documents relating to share issues would be too broad. Similarly, Rasley seeks all documents relating to the lease from FMI, which is likely to produce a large number of routine property management documents in which Rasley can have no legitimate interest. Counsel for Rasley proposed that the linking term in these categories could be changed to documents 'evidencing' the transactions, but that is still potentially wide and indeterminate. 96 It is not possible for the court, on the current state of the evidence, to determine an appropriate description of categories of documents to be inspected. That was confirmed by the various attempts made by counsel for both parties to propose modifications of categories during the hearing. As helpful as the attempts were, they demonstrated that further negotiation is necessary and that it should not take place across the bar table. Given the attitudes of the respective parties evidenced by the correspondence, and the fact that FEX has not retained a separate solicitor in this matter, there should be conferral between counsel about the document categories. 97 The categories should be such as to be capable of addressing the legitimate concerns that Rasley has about the transactions. In the case of the share issues, those concerns are why the issues were made, to whom and on what terms, how the consideration for the various issues was determined or otherwise set, and whether that consideration was fair in all the circumstances. In the case of the leases from FMI, the concerns are how the rent was determined or otherwise set and whether it is, or was at the time the lease was made, a fair market rent. 98 The document categories are not necessarily to be limited by reference to the observation of McPherson J quoted above that in many circumstances a shareholder ought not to be assisted by an order under the provision to reports or records leading to the decisions of directors. As Debelle J recognised in Acehill at [39], that is a general rule only, and there will be occasions where shareholders will be entitled to examine 'what is germane to the determination of value'.

Who should be authorised to inspect? 99 Rasley seeks orders permitting Mr Tomlinson and two solicitors from Law Central Legal to inspect the documents. That is appropriate and no objection was taken to it per se. 100 Rasley also sought orders authorising Mr Cuthbert, the director of Redmont, to inspect the documents. That would not be appropriate. There is nothing to indicate that Mr Cuthbert would be acting on behalf of or as an adviser to Rasley, the shareholder and applicant in this proceeding. No proper basis has been articulated as to why a person who is not a member, and is therefore not entitled to apply for the order, should be entitled to 'piggy back' on a partially successful application by a shareholder. That is especially so where there is no direct evidence of Mr Cuthbert's or Redmont's purposes in seeking inspection. I will not make an order authorising inspection by them. 101 Rasley did not suggest that the court had power to order the inspection of books at any place outside Australia, or that such an order would be appropriate. If Mr Tomlinson remains in Hong Kong as he was at the time he swore his affidavits, that may present practical difficulties for inspection by him in light of the current pandemic. That is another reason why counsel for the parties should confer.

Conditions on inspection 102 Section 247B(a) permits orders limiting the use to which documents inspected may be put. That is in the context where s 247A(6) provides that a person authorised to inspect books may make copies of the books unless the court orders otherwise, s 247B(b) authorises the court to limit the ability of a person who inspects books to make copies, and s 247C provides that a person who inspects books on behalf of an applicant under section 247A must not disclose information obtained during the inspection other than to ASIC or the applicant. 103 FEX submitted that if inspection of any books is ordered, it should be subject to a condition limiting the use to which the information so obtained may be put to the allaying of concerns or the consideration of potential litigation such as derivative action oppression applications. I agree that it may be appropriate to impose one or more such limitations on the use to which documents inspected may be put. Counsel for Rasley did not seek to argue against a condition of the kind that Gordon J ordered in Hanks at 115, prohibiting the plaintiff from communicating or disclosing information obtained as a result of the inspection to anybody except legal advisers and such other persons necessary to enable the plaintiff to determine whether to apply for relevant relief. I am minded to impose a similar restriction here. Counsel for the parties should confer as to its precise terms, in view of the purposes of inspection that are listed in Law Central Legal's letter of 28 May 2019.

Costs 104 Since each party has had partial success, they should be heard on costs. That question should also be the subject of the conferral between counsel, and in the event of disagreement appropriate directions will be made to determine the question. I certify that the preceding one hundred and four (104) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Jackson.