Claremont Petroleum NL, Re (No 2) [1990] QSC 65 [1990] 2 Qd R 310

10 '20 30 40 50 60 I ?:E'JISED cop;.:=.s 1ssuEo .I :Cour/t ~e[YJrting Bureau I 1 L~~te'--·-~~,- Y}__ .?~---:c,N'THE SUPREME COURT OF QUEENSLAND CIVIL JURISDICTION BEFORE MR. JUSTICE McPHERSON BRISBANE, 29 MARCH 1990 No. 378 of 1989 (Copyright in this transcript is vested in the Crown. Copies thereof must not be made or sold without the written authority of the Chief Court Reporter,Court Reporting Bureau.) IN THE MATTER OF the Companies (Queensland) Code -and- IN THE MATTER OF CLAREMONT PETROLEUM N.L. JUDGMENT HIS HONOUR: I have prepared reasons for judgment which I will now deliver. Set out in the final three pages are orders that I now make; I will not repeat them. I will add to what I have said there:· liberty to apply. -Govt. Printer, Qld. -1- 10 20 30 40 50 60· -- 1 of 14 -- IN THE SUPREME COURT OF QUEENSLAND No. 378 of 1989 Before Mr Justice McPherson IN THE MATTER OF the Companies (Queensland) Code - and - IN THE MATTER of CLAREMONTPETROLEUM N.L. JUDGMENT - McPHERSON J. Delivered the Twenty-ninth day of March 1990 CATCHWORDS: Company law - Members - Rights of - Right to inspect books of company - Accounting and banking records - Principles. Counsel: Solicitors: Mr Gotterson Q.C., with Mr McMurdo for the Applicant. Mr D. Ryan for the Respondent. Messrs. Chambers McNab Tully & Wilson for the Applicant. Messrs. Flower & Hart for the Respondent Hearing Date: 22 March, 1990 -- 2 of 14 -- IN THE SUPREME COURT OF QUEENSLAND No. 378 of 1989 IN THE MATTER OF the Companies(Queensland) Code - and - IN THE MATTER of CLAREMONTPETROLEUM N.L. JUDGMENT - McPHERSON J. Delivered the Twenty-ninth day of March 1990 On 28 November, 1989 on the application of Australian Gas Light Company ("AGL"), I made an order under the Companies (Queensland) Code that two persons acting on behalf of AGL be authorised to inspect certain specified books of Claremont Petroleum N. L. ( "the Company"). An appeal by the Company against that order was dismissed by the Full Court on 15 December, 1989. In broad terms the order authorised inspection of four categories of books or documents; that is to say ( 1) all agreements between the Company and various other companies, most or all of which form part of the Independent Resources Limited Group ("IRL"), relating to the acquisition of assets or making of loans by the Company; (2) documents recording advice, discussion, etc. relating to those matters; (3) documents of a similar kind relating to investment by the Company in Zuri Invest; and (4) documents relating to funds lent to or invested in Rothwells Limited that answered certain descriptions. Tbe order was subject to a general condition that information was not to be used except for the purpose of the next annual general -- 3 of 14 -- 2 meeting of the Company, and of obtaining legal advice relating to proceedings ~n Court. Pursuant to the order inspections were carried out by AGL and a considerable number of documents have been provided and examined on behalf of AGL. No question now exists about documents the subject of category (3) of the order; but disputes concerning documents in some of the other three categories have generated correspondence between the parties or their solici tars. In consequence application was made by AGL for a further order for inspection of various books and documents of the Company. In addition, the applicant sought an order that the Company convene the annual general meeting of the Company, and provide annual accounts for the year ending June 30, 1989. Material read on behalf of the Company suggests that those accounts have now beeri pr~pared and audited. At the hearing in November, 1989 there was oral evidence from Mr M.J. Fuller, chairman of directors of the company, that it was expected that the annual general meeting would be held "before the Christmas break". That expectation has not been fulfilled. At the hearing last week I therefore made an order that such a meeting be convened, to be held not later than 30 April, 1990. Mr Ryan, who appeared on behalf of the Company at the hearing, did not oppose that or the order with respect to the accounts. Mr R.J. Wiles, who is a manager of the applicant AGL, deposed that he had examined documents inspected under the order made in November, 1989. It is convenient to adopt the classification used in his affidavit in these proceedings. The first transaction or series of transactions concerns purchases by the Company of shares, most of them ordinary but -- 4 of 14 -- 3 some preference, in Rothwells Limited. The total number of shares involved is 843,940. Exhibit "A" to the affidavit of Wiles consists of two documents. There is a letter dated 14 June, 1988 from IRL to a Mr Hilton of Beach Petroleum N.L. It is attached to a facsimile dated 16 June, 1988 from one Edwards of IRL to a Mr Worthington of the Company. The latter refers to a telegraphic transfer of $1 .5 million from the Company to various specified accounts. Three agreements were produced for the sale of these shares by IRL companies to the Company. Copies are exhibited and marked "C", 11 D 11 and "E". In general each of those agreements provides for the transfer of those shares by the vendor to the Company subject to a "put" option exercisable by 15 March, 1989 entitling the Company to retransfer those shares to each vendor. Other documents produced show that the put options were exercised on 10 March, 1989. Under the agreements the prices to be paid on exercise of those options were to be the buyer's price ruling on the Melbourne Stock Exchange on 14 June, 1988, which is the date of the IRL letter referred to. At that date the relevant stock exchange price for Rothwells ordinary shares was 7 5 cents and for preference shares $1.35. There are some odd features about this transaction. Two of the three agreements are dated 9 September, 1989; the other is undated. Under those agreements the Company appears to have paid 98 cents for the ordinary shares and $1.50 for the preference shares. Having subsequently exercised the put options on 10 March, 1989, it became entitled to receive repayment in each instance of considerably less than it had paid out in order to acquire those shares on or about 16 June, 1988. An assessment -- 5 of 14 -- 4 of the propriety or otherwise of entering into those agreements may, I think, ultimately depend, at least in part, upon the extent of the information available to directors about the future viability of Rothwells in mid-June, 1988 and thereafter; and also on the lik~lihood or otherwise that the vendors to the Company of those shares would be in a position to repay the consideration totalling $1.5 million in the event that, as happened, the put options were exercised. With the range of possible answers or responses to these questions I do not consider that I should be immediately concerned. AGL complains that no minutes of board meetings of the Company relating to these transactions, and no documents other than share transfers and correspondence relating to their registration, have been produced. There is, however, nothing ( other than the ordinary and proper course of business or corporate practice in such matters) to suggest that decisions, if any, of the board were properly considered, made, or recorded. That may well engender suspicion about the propriety of entering into those transactions; but AGL is quite able now to draw its own unaided conclusions about such matters, and to pursue effective questioning of directors at the forthcoming annual general meeting, or to institute legal proceedings against them, without being in possession of any such further documents if they exist. On the other hand, it seems to me that for either or both of those purposes, it is right that as a shareholder AGL should know whether the Company has received repayment from the vendors of the sum of $1 .5 million paid as consideration for those shares on or about 16 June, 1988. I therefore propose to order that the applicant be authorised to inspect entries in the Company's cash -- 6 of 14 -- 5 books, journals and other accounting and banking records relating to amounts, if any, paid by the vendor pursuant to clause 7 of each of those agreements. The second transaction concerns the purchase of 3,310,000 shares in Energy Capital Plc., now Claremont (U.K.) Plc. It appears from the IRL letter dated 14 June, 1988 that the purchase price was $1,452,000.00 and that the vendors were Duralite Manufacturing Co. Inc. and Yellowstone Exploration and Mining Pty. Limited, both of which are companies in or associated with the IRL group. In his evidence at the November hearing Mr Fuller said that his recollection was that Bush Creek Mining Development Company Inc. was one of the vendors of those shares. It was said to-be a:company associated with IRL. The order made on the last occasion refers to agreements with Brush Creek Mining & Development Company Inc. AGL's complaint is that no agreement to purchase Energy Capital shares from either Bush Creek or Brush Creek has been produced. I am not altogether surprised at .that. But in case some point is being made about slight differences of nomenclature, I will now make orders in terms of paras. 1 and 2 of the order dated 28 November, 1989 for production of any agreement or documents of the kind referred to in those paragraphs involving the Company and Bush Creek Mining and Development Co. Inc., or any other company or corporation having or having had a name similar to or only colourably differing from that name. The third transaction identified in the affidavit of Mr R.J. Wiles involves payment by the Company of $1.5 million to Cortaus Limited, another IRL group entity. The agreement in this instance, which again is referred to in the IRL letter of -- 7 of 14 -- 6 14 June, 1988, was to buy Cortaus' Australian and United States oil interests. On inspection a document dated 5 December, 1988 entitled "heads of agreement" was produced providin'g for the sale of those interests at a price to be determined by valuation. A copy of that document is exhibit "N" to the affidavit of Wiles. There is other material before me showing that in August, 1989 $20,000.00 was agreed or determined as the price to be paid for those interests. Cort a us Limited is one of the companies referred to in para. 1 of the November order. Again, the complaint made is that no minutes or records of board meetings or decisions, or reports or documents preceding them have been produced. For the reasons I g~ve in relation to the Rothwell's shares transactions, I do not consider that any further order should be made in relation to those matters. On the other hand, the Company is shown to have paid Cortaus $1. 5 million for something that was later agreed to be worth only $20,000.00. The sum of $1.5 million is described in the heads of agreement as a "refundable deposit". That it has been treated as having that character is demonstrated by a facsimile transmission dated 10 August, 1989 from the Company to Cortaus in which the former acknowledges having credited $20,000.00 against the refundable deposit. What has happened to the balance $1,480,000.00 of the deposit does not appear. It is certainly reasonable that a shareholder like AGL should be informed about it. I will order that the applicant be authorised to inspect entries in cash books, journals, etc., relating to the payment or repayment of the refundable deposit referred to in those heads of agreement. -- 8 of 14 -- 7 The fourth and fifth matters mentioned in the IRL letter of 14 June, 1988 concern Meridian Oil N. L., which is yet another IRL group member or associate. In this instance there is another documentary "heads of agreement" pursuant to which the Company paid a "refundable deposit" defined as $1,627,500.00 to Meridian for various oil and gas interests. It is exhibit "s" to the affidavit of Wiles. By 20 December, 1988 agreement had been reached on a price of $350,000.00 for these interests. The fate of the refundable balance over and above what was paid by the Company is not disclosed by the material produced for inspection. I will make a similar order in the instance to that in the preceding case. The other transaction involving Meridian referred to in the IRL letter forming part of ex. "A" consists of an offer of an option by Spargos Mining N.L. to sell to the Company "management control" of Meridian Oil N. L. for a period of six months in return for yet another "refundable deposit" of $500,000.00. Spargos Mining N.L. is, needless to say, also an IRL associate. What is meant by "management control" in this context is not explained, and no one at the Bar table was able to enlighten me as to its meaning or effect. If it envisages transfer to the Company of the powers or discretions of the directors of Meridian then it might be difficult in principle to see how such an agreement would be enforceable : cf. Thorby v. Goldberg (1964) 113 C.L.R. 597, 605, 616. If it purports to transfer anything less, it appears to be valueless. I think that AGL is entitled to know whether the Company paid the refundable deposit of $500,000.00 or any part of it, and what has been its fate. I will make a similar order in this case. -- 9 of 14 -- 8 Each of the aforementioned "heads of agreement" marked "N" and 11 S 11 look forward to execution of a formal contract. None has been produced for inspection. But that supposing that any formal contracts exist. is no reason for As it is, they fall within the existing terms of para. 1 of the November order. I will not make a further order in respect of them. The Company also made an agreement with Meridian to pay the latter US.$120,000.00 for certain North Korean exploration interests. Any formal agreement or documents relating to it are within the terms of the November order. A few informal memoranda have been produced. There is no reason for supposing anything more exists. I refuse the order sought in this instance. There are a further two documents "Y" and "z" entitled "heads of agreement" between the Company and Moage Ltd., another IRL associate. One dated 24 October, 1988 refers to the sale to the Company of shares in Moage Inc. of Texas; the other dated 5 Jb.ly, 1989 refers to sale of the shares "or the underlying assets of Moage Inc.". Moage Inc. is not itself a party to the latter agreement. Each agreement looks forward to future agreement on price and to execution of a formal contract. Both recite payment of "refundable deposits", in one case of $600,000.00 and in the other of $3 million. There are cheque requisitions, vouchers and letters that appear to account for sums totalling $2,235,000.00 paid by the Company to Moage Limited. A letter from the Company's solicitors has advised that completion of the transaction had not taken place by 25 January, 1990. Moage Ltd. is one of the companies ideritified in para. 1 of the Novemb~r order. If any formal contract has been executed since that date, one would expect it to be available for inspection. There is no -- 10 of 14 -- 9 reason to suspect. that it or any other document, apart from those already made available, exists. It is reasonable that AGL should know what has happened to the amounts paid to Moage Ltd., and I will make an order in terms similar to those already foreshadowed. The final transaction or series of transactions concerns loans to Rothwells Limited. refers to these. Pursuant Paragraph 4 of the November order to the order, various cheque requisitions and money market transaction vouchers for amounts totalling between $10,300,000.00 and $10,800,000.00 have been made available for inspection. In respect of these transactions, which oc.curred between 19 February and 18 August, 1988, I will make an order similar to those in the preceding instances discussed. I am not prepared to order inspection of documents, if any exist, referring to the authority of Mr Greenham of IRL to hold discussions on behalf of the Company with Mr Counell of Rothwells, nor with respect to discussions or consideration of the question whether Rothwells was an appropriate subject for investment of Company funds. In reaching conclusions on these matters I have acted on the principle that s.265B is intended to enable a member of a company to inspect its books in order to obtain information about matters that, as member or shareholder in the company, he ought to be informed of by the company. The procedure under s.265B is not intended as a form of or substitute for inspection of documents after discovery on affidavit or answers to interrogatories in pending litigation. 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 -- 11 of 14 -- 10 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. Section 265B(1)(a) and (c) both contemplate that a registered company auditor may be authorised to inspect "books", and it is difficult to see what useful purpose that can serve unless, in a case such as this, he was authorised to inspect accounting records of the kind I have specified. The applicant AGL is, I am satisfied, acting in good faith and for the proper purpose of ascertaining the true financial position of the Company. In saying that, it is not necessary or desirable to go further than to state that, on what has already appeared in the material placed before me in this case, the directors of Claremont Petroleum N.L. have a great number of pertinent questions to answer at the annual general meeting about the way in which they have disposed of very large sums of the Company's money. I will make the following orders: 1. An order that pursuant to s.265B of the Code, Eddie John Pippet, a registered company auditor, and John Elliott, a duly qualified legal practitioner, both acting on behalf of The Australian Gas Light Company, be authorised to inspect at the head office of Claremont Petroleum N. L. ( "the Company") in Sydney and make copies of or take extracts from such of the books of the Company as follows:- -- 12 of 14 -- 1 1 (a) Any and all agreements made between the Company and a company or corporation having or having at any time had the name Bush Creek Mining and Development Co. Inc., or any other company or corporation having or having had a name similar to that name or only colourably differing from that name relating to:- , ( b) ( i) the acquisition by the Company (whether by purchase or otherwise) of assets including shares and chases in action; (ii) the making of payments by the Company between 16 May, 1988 and the date of this order. All correspondence, memoranda, and other documents embodying or recording advice, comment, discussion or negotiations relating to matters referred to in 1(a) and ( b). 2. An order that pursuant to s.265B of the Code the said Eddie John Pippet and John Elliott acting on behalf of The Australian Gas Light Company be authorised to inspect at the said office and make copies of entries in the cash books, journals, and other accounting and banking records of the Company relating to:- (a) amounts, if any, paid, repaid or discharged by or on behalf of the vendor pursuant to clause 7 of the agreements and any of them exhibited and marked "C", 11 D 11 and "E" to the affidavit of R.J. Wiles herein; (b) amounts, if any, paid, repaid or discharged by or on behalf of Cortaus Limited or Cortaus Ltd. on account of the amount or any part of it described as refundable deposit in a document entitled "heads of agreement" of -- 13 of 14 -- 12 which a copy is exhibited and marked "N" to the said affidavit; (c) amounts, if any, paid, repaid or discharged by or on behalf of Meridian Oil N.L. on account of the amount or any part of it described as refundable deposit in a document entitled "heads of agreement" of which a copy is exhibited and marked "S" to the said affidavit; (d) amounts, if any, paid by or on behalf of the Company to or paid or repaid to or on behalf of the Company for Spargos Mining N.L. on account of the amount or any part of it described as refundable deposit in the paragraph denoted "5. Meridian Oil N.L. Control" in a document dated 14 June, 1988 a copy of which is exhibited and marked "A" to the said affidavit; (e) amounts, if any, paid, repaid or discharged by or on behalf of Moage Ltd. or Moage Inc. on account of the amount or amounts, or any part of or either of them, described as refundable deposit in documents entitled "heads of agreement" copies of which are exhibited and marked "Y" and "z" to the said affidavit; (f) amounts, if any, paid by or on behalf of the Company or paid or repaid to or on behalf of the Company on account of the amounts, or any part of them, referred to in paragraph 12 of the said affidavit. The Company is ordered to pay the costs of and incidental to this application. -- 14 of 14 --