New South Wales Supreme Court CITATION : Coast Reo v Asset Builders [2007] NSWSC 853 HEARING DATE(S) : 30 July 2007 JUDGMENT OF : Hammerschlag J EX TEMPORE JUDGMENT DATE : 30 July 2007 DECISION : Mr Paul Alexander Russell is authorised to inspect the books of Asset Builders Pty Limited ACN 087 721 220 on behalf of the plaintiff, Coast Reo Pty Limited. Without the prior written consent of the defendant or order of this Court copies of books so inspected are not to be taken. CATCHWORDS : CORPORATIONS – Application under s 247A(1)(b) and (2) of the Corporations Act 2001 (Cth) by a shareholder for an order authorising inspection of company's books – Shareholder neither nominal nor recent – Inspection in good faith and for proper purpose – Where documents commercial in confidence copies not to be taken without prior consent or order of the Court - Liberty to apply LEGISLATION CITED : Corporations Act 2001(Cth) CASES CITED : Quinlan v Vital Technology Australia Ltd (1987) 5 ACLC 389 PARTIES : Coast Reo Pty Ltd Asset Builders Pty Ltd FILE NUMBER(S) : SC 2532/2006 COUNSEL : D.J. Durston (Plaintiff) N. Bearup (Defendant) SOLICITORS : Peninsula Law (Plaintiff) Sachs Gerace Lawyers (Defendants) - 4 - IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION CORPORATIONS LIST HAMMERSCHLAG 30 JULY 2007 2532/2006 COAST REO PTY LTD v ASSET BUILDERS PTY LTD EX TEMPORE JUDGMENT 1 HIS HONOUR: This is an application under s 247A(1)(b) and (2) of the Corporations Act 2001 (Cth) ("the Act") by the plaintiff, a member of the defendant, for an order authorising it to inspect the books of the defendant. It seeks that the inspection be undertaken on its behalf by Mr Paul Alexander Russell, a chartered accountant. 2 Under 247A(1)(b) on application by a member of a company the Court may make an order authorising another person (whether a member or not) to inspect books of the company on the applicant's behalf. 3 Under s 247A(2) a person authorised to inspect books may make copies of the books unless the Court orders otherwise. 4 Under s 247A(1) the Court may only make the order if it is satisfied that the applicant is acting in good faith and the inspection is to be made for a proper purpose. 5 The plaintiff holds 30,000 class A shares in the defendant. It is not suggested that the plaintiff is either a recent or token shareholder in the defendant. Such an applicant will more easily discharge the burden of showing good faith than one that has recently acquired a token holding: Quinlan v Vital Technology Australia Ltd (1987) 5 ACLC 389 at 393. 6 Read on the application on behalf of the plaintiff were the affidavits of Geoffrey Corah of 5 April 2006, Arthur Vella of the 29 March 2006 and Mr Russell of 1 March 2007. 7 On behalf of the defendant were read the affidavits of Bruce Whiting of 21 May 2007 and Scott Williams of 23 May 2007. 8 There are a number of issues bubbling beneath the surface between these parties concerning, amongst others, the charging of management fees between a related company Logic Systems Pty Ltd ("Logic") and the defendant. 9 Certain documents have previously been made available to the plaintiff by the defendant. Objection has been taken, properly so, to there being made available to the plaintiff documents which are not documents of the defendant but of Logic. There is a dispute concerning the delineation between the records of the two entities. 10 A meeting took place on 13 December 2006 for the purposes of enabling inspections by Mr Russell of all the books and records of the defendant. 11 Miss Bearup of counsel who appeared for the defendant put that such documents as have been requested by the plaintiff and which are documents of the defendant have been made available. 12 However, in paragraph 13 of his affidavit 21 May 2007 Mr Whiting said the following: "I understand that Russell states that his was not allowed to take copies of documents that he was inspecting. In response to that statement, I say: …. (c) I did not give Russell copies of the management fee calculations because they related, not only to Asset Builders, but other related companies and the information is commercial-in-confidence. Russell was shown those documents and was given as much time as he required to take notes or transcribe any of the figures if he wished. During the course of the meeting, I observed Russell taking detailed notes while he was looking at the management fee calculation. ….." 13 Having regard to the nascent dispute between and the respective positions of the parties, I am satisfied that the plaintiff is acting in good faith and that the further inspection which it seeks is to be made for a proper purpose. 14 It is to be stressed, that the plaintiff is not under the orders I propose to make, entitled to inspect the books of any company other than the defendant. It is, however, entitled to inspect all of the books of the defendant even if those books "relate" to some other entity or are "commercial in confidence". 15 Nothing was put as to why Mr Russell is not an appropriate person to make the inspection. 16 Some of the documents which have previously been inspected are said to be commercial in confidence. In the context of the particular circumstances of this dispute, I propose to order that copies are not be taken without the prior consent of the defendant or further order of the Court. 17 The orders of the Court will be that Mr Paul Alexander Russell shall be authorised to inspect the books of Asset Builders Pty Limited ACN 087 721 220 on behalf of the plaintiff, Coast Reo Pty Limited. 18 Without the prior written consent of the defendant or order of this Court copies of books so inspected are not to be taken. 19 Each of the parties has liberty to apply on 3 days notice. 20 The defendant is to pay the costs of the application. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. 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