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.