The Full Court of the Federal Court of Australia in Mesa Minerals Limited v Mighty River International Limited [2016] FCAFC 16 (“Mesa Minerals”) has recently summarised the principles relevant to an application by a shareholder to inspect the books of a company under s 247A of the Corporations Act 2001 (Cth).
Section 247A
Section 247A relevantly provides:
“(1) On application by a member of a company… the Court may make an order:
(a) authorising the applicant to inspect books of the company… ; or
(b) authorising another person (whether a member or not) to inspect books of the company … on the applicant’s behalf.
The Court may only make the order if it is satisfied that the applicant is acting in good faith and that the inspection is to be made for a proper purpose.”
If the Court makes an order under s 247A, the Court is permitted by s 247B to make any other orders it considers appropriate, including an order limiting the use that a person who inspects the books may make of information obtained during the inspection and/or an order limiting the right of such a person to make copies.
Section 247C prohibits a person who inspects books on behalf of an applicant from disclosing information obtained during the inspection to anyone but ASIC and the applicant.
The relevant principles
In Mesa Minerals at [22], Katzmann J (with whom Siopis and Gilmour JJ agreed) summarised thirteen principles which were relevant to an application under s 247A. Her Honour noted that these principles were drawn from the summary propositions set out by Debelle J in Acehill Investments Pty Ltd v Incitec Ltd [2002] SASC 344; 223 LSJS 97 (“Acehill Investments”) at [29] and the additional principles identified by Gordon J in Hanks v Admiralty Resources NL [2011] FCA 891; (2011) 85 ACSR 101 at [32].
The principles (omitting references to the cases) are as follows:
- The stipulation that an application be made in good faith and for a proper purpose is a composite notion rather than two distinct requirements. Acting in good faith and inspecting for a proper purpose means acting and inspecting for a bona fide proper purpose.
- Good faith and proper purpose must be proved objectively.
- “Proper purpose” means a purpose connected with the proper exercise of the rights of a shareholder as shareholder and not, for example, as a litigant in proceedings against the company or as a bidder under a takeover scheme.
- The onus of proof is on the applicant.
- An applicant who has a significant holding and who has been a shareholder for “some considerable time” will more easily discharge the onus than one who has recently acquired a token holding.(Note: See also Katzmann J’s comments at [38]-[39]).
- It is not necessary that the applicant show that its interests are different to those of other shareholders. (Note: Acehill Investments was to the contrary, but Katzmann J observed at [23]-[25] that a different view had been expressed by other cases).
- Nor is it necessary that the applicant have sufficient evidence to bring or make out an action; it is enough that the issue raised by the applicant is “substantive and not fanciful”, not “artificial, specious or contrived”.
- Pursuing a reasonable suspicion of breach of duty is a proper purpose.
- Provided that the applicant’s primary or dominant purpose is a proper one, it is not to the point that an inspection might benefit the applicant for some other purpose.
- Applicants do not necessarily lack a proper purpose merely because they are hostile to other directors.
- 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. (Note: See also [50]-[68]).
- The procedure under s 247A is not intended to be as wide-ranging as discovery so that the general rule is that inspection will be limited to such documents as evidence the results of board decisions, rather than all board papers leading to decisions, but there may be occasions when it is proper to permit inspection of board papers.
- The Court has a residual discretion whether to order inspection.
Other matters to note
Other matters to note from Mesa Minerals include the following:
- At [78]: Delay in bringing an application may weigh against the grant of an inspection order if the delay is indicative of acquiescence, or the applicant has “sat on its hands, so to speak” or the delay has caused prejudice to the company.
- At [82]: The Corporations Act does not exclude foreign companies from making an application under s 247A(1) and there is no authority for the proposition that additional limitations should be placed on foreign investors in Australian companies.
- At [83]-[84]: Reference was made to the following passage in the judgment of Goldberg J in Re Style Limited [2009] FCA 314; (2009) 255 ALR 63 at [71] which has been followed by a number of other judges at first instance and the passage was applied to the facts of the case:
“In granting an order for inspection under s 247A it is not appropriate to allow a wholesale and general inspection of Style’s books. This would cause unnecessary disruption to the company. In any event the books to be inspected should be books that bear on, and be particularly relevant to, the purpose for which the inspection is sought.”
