Federal Court of Australia

J F Investment Holdings Pty Ltd v Golden Mile Milling Pty Ltd [2023] FCA 1600

ORDERS

THE COURT ORDERS THAT:

1.    Pursuant to section 247A(1) of the Corporations Act 2001 (Cth), that the plaintiff (by its sole director), Benjamin Charles Jones (as nominated by the sole director of the plaintiff) and the plaintiff's legal representatives be authorised to inspect the following books of the defendant in both hard copy (at the defendant’s registered office) and electronic format, provided such inspection takes place no later than 12 January 2024:

(a)    the constitution of the defendant (if any);

(b)    minutes of annual general meetings of the defendant (if any) from the defendant’s incorporation to date;

(c)    any document or record of information (including resolution(s) of the director(s) of the defendant) that records:

(i)    any authorisation for Lawrence Hargrave's use of the defendant’s funds to pay for his personal expenses and the reason(s) for any such authorisation;

(ii)    any authorisation of the payment of wages (or salary) to Lawrence Hargrave and the reason(s) for any such authorisation’

(d)    any document or record of information (including any financial reports or financial records, however compiled, recorded or stored) which records:

(i)    the terms of the sale by the defendant to Karora Resources Inc. of the Lakewood Mill that was completed on or around 27 July 2022 (the Lakewood Mill Sale);

(ii)    the receipt of the sale proceeds of the Lakewood Mill Sale including:

A.    to whom (and/or to what bank account) the cash sale proceeds were made;

B.    to whom the share portion of the consideration of the sale was made out and is presently held;

(iii)    details of the transfer of any of the funds or shares received from the Lakewood Mill Sale by the defendant to any third party (including the date of transfer, the recipient of the funds, the amount of the transfer and the reason(s) for the transfer).

(e)    the financial statements and management accounts of the defendant from the date of the defendant’s incorporation to date, including:

(i)    all audited financial statements; and

(ii)    the current financial accounts and financial statements of the defendant, as well as year to date management accounts of the defendant, including any drafts of the same that have been prepared as at the date of inspection, that record the current financial position of the defendant and its current assets and liabilities.

(f)    bank statements for the accounts operated by the defendant identified in the affidavit of Neil Jones filed on 23 August 2023 from April 2023 to present;

(g)    bank statements for any accounts operated by the defendant from 1 January 2021 to present, other than the accounts identified in the affidavit of Neil Jones filed on 23 August 2023; and

(h)    credit card statements belonging to ‘NAB Cards’ identified in the GMM Transaction Account statement from January 2021 to present.

2.    Pursuant to section 247A(2) of the Corporations Act 2001 (Cth), the plaintiff (by its sole director), Benjamin Charles Jones (as nominated by the sole director of the plaintiff) and the plaintiff's legal representatives be authorised to make copies of the documents inspected as referred to in order 1 above.

3.    To the extent necessary, pursuant to section 247B of the Corporations Act 2001 (Cth), the plaintiff and the plaintiff's legal representatives be authorised to use the information obtained during the inspection and copies of documents made as referred to in orders 1 and 2 above for any purpose, including the commencement of any subsequent legal proceeding by the plaintiff.

4.    The defendant pay the plaintiff’s costs of the application.

5.    There be liberty to apply on three days’ notice.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

SARAH C DERRINGTON J

Introduction

1    This is an application pursuant to ss 247A and 247B Corporations Act 2001 (Cth) filed on 23 August 2023 by J F Investments Holdings Pty Ltd (JFI) (Originating Application). JFI seeks an order authorising it to inspect the books of the defendant, Golden Mile Milling Pty Ltd (GMM), being those categories of documents set out in Annexure A to the Originating Application. It also seeks orders authorising its legal representatives, and Mr Benjamin Charles Jones (Ben Jones), a nominee of its sole director, to inspect the books on its behalf.

2    Section 247A(1) empowers the Court, on application by a member of a company, to make such orders. The Court may make the orders only if it is satisfied that the applicant is acting in good faith and that the inspection is to be made for a proper purpose.

3    For the purposes of this application, it is accepted that JFI has standing to bring the application. It is a member of GMM, as defined under ss 7 and 231 of the Corporations Act, being registered as a current member in the records of ASIC. It is uncontroversial that it holds a 40% share in GMM and has been a shareholder since 2015. The remaining 60% share in GMM is held by Lawhar Enterprises Pty Ltd.

4    The purpose for the application is deposed to by Mr Neil Jones, the sole director, secretary, and shareholder of JFI, in paras [52] and [53] of his affidavit sworn on 22 August 2023 (Aff 1-Neil Jones). JFI wishes to inspect the books because it wishes to investigate potential irregularities in GMM’s financial transactions. Of particular relevance to this application, Neil Jones deposes to being concerned about: whether there has been a proper and authorised use of funds in one of GMM’s bank accounts; the whereabouts of the proceeds of sale of GMM’s major asset; and whether there have been acts or omissions by GMM or its sole director, Mr Lawrence Hargrave, contrary to the rights and interests of GMM and/or JFI and Lawhar as shareholders in GMM or that are otherwise in breach of obligations owed to those same entities.

5    The application was opposed by GMM on the basis that the concerns articulated by JFI are contrived and not related to the true dispute between the parties.

Background

6    The background to the matter is contained in three affidavits of Neil Jones – Aff 1-Neil Jones; his affidavit sworn on 22 September 2023 (Aff 2-Neil Jones); his affidavit sworn on 3 November 2023 (Aff 3-Neil Jones); and the affidavit of his son, Ben Jones, sworn on 3 November 2023 (Aff-Ben Jones).

7    Neil Jones was cross-examined. Ben Jones’ evidence is unchallenged. GMM adduced no evidence.

8    Neil Jones deposes to it having been discussed between himself and his son, and Lawrence Hargrave, commencing on or around August 2014 through to July 2015, that they would incorporate a company to acquire and operate Lakewood Mill, a gold production and processing facility near Kalgoorlie in Western Australia. He says it was discussed that, after any future sale of Lakewood Mill, the proceeds of sale would be shared proportionately to the respective shareholdings in the company. GMM was incorporated on 3 October 2014 to give effect to those discussions.

9    Lawrence Hargrave is married to Ms Jillian Hargrave, who is Neil Jones’ niece and Ben Jones’ cousin. Ben Jones deposes to his understanding that Lawrence Hargrave approached him to be involved in certain business opportunities, of which the Lakewood Mill was one, because he was a family member and that, to his knowledge (Aff-Ben Jones [15]):

Lawrence was aware that I had personal savings and investments that might allow me to contribute capital on relatively short notice to any business venture, was aware of my significant financial and fundraising expertise and … became aware my interest in transitioning away from a financial services career into entrepreneurial interests on my own behalf.

10    On or around 1 July 2015, GMM acquired the Lakewood Mill. Neil Jones deposes that Lakewood Mill was the only major asset held by GMM and was the only business operated by it (Aff 1-Neil Jones [21]).

11    JFI holds its 40% shareholding in GMM as trustee of the Jones Trust, a discretionary family trust established on 30 June 2015. The discretionary beneficiaries of that trust are Neil Jones, his wife, Ms Christine Elizabeth Jones, and their son, Ben Jones.

12    Neil Jones deposes that Lawhar holds its 60% shareholding in GMM as trustee of the Hargrave Family Trust, a discretionary family trust of which the beneficiaries are Lawrence Hargrave and/or his family members (Aff 1-Neil Jones [11]).

13    Neil Jones deposes to he and his son being given access, on or around 15 June 2015, to GMM’s transaction account with the National Australia Bank (GMM Transaction Account). Neil Jones deposes that, to his knowledge, the only people who had access to that account between June 2015 and March 2023, in addition to himself, were Lawrence Hargrave, Ben Jones, and GMM’s Mill Manager and his wife.

14    Ben Jones’ affidavit describes in some detail his ongoing operational involvement in GMM and decision making about GMM and the Lakewood Mill (Aff-Ben Jones [183]-[198]). In particular, he deposes to being given access to GMM’s accounting software on 29 September 2015, granting him full access to the financial data of the business (Aff-Ben Jones [186]). He also deposes to his regular visits to the Lakewood Mill between 2015 and 2019 (Aff-Ben Jones [188]).

15    Neil Jones deposes that he no longer has access to the GMM Transaction Account but could not say precisely when that access was removed, nor by whom.

16    In or about February 2022, a dispute arose about the nature of JFI’s shareholding in GMM (Aff-Ben Jones [199]). That dispute remains unresolved and, insofar as that dispute could affect the question of JFI’s standing, it is irrelevant to this present application.

17    Ben Jones deposes to there being no communication between him and Lawrence Hargrave since 9 November 2022 (Aff-Ben Jones [216]).

18    Ben Jones deposes to having conducted a Google search on GMM, on or around 3 March 2023, whereby he became aware of the sale of Lakewood Mill to Karora Resources, on or around 27 July 2022, for $80 million. The proceeds of sale comprised a cash component of $70 million and $10 million worth of shares in Karora Resources (Aff-Ben Jones [217]).

19    Similarly, Neil Jones deposes to having been made aware of the sale by his son on or about the same date (Aff 1-Neil Jones [27]-[28]).

20    JFI had no knowledge of this transaction. It conducted a review on 23 March 2023 of the transactions recorded in the GMM Transaction Account from 1 April 2021 to 23 March 2023. It is concerned that, despite requests for information and access to GMM’s books, JFI has not been provided with access to those books, nor to any information about the sale, the cash proceeds or the Karora shareholding. Those requests include a request on 9 June 2022 to be granted access to the financial accounts of GMM, a letter from MinterEllison to GMM dated 27 April 2023 (MinterEllison Letter), a further letter from MinterEllison to GMM’s former solicitors (now solicitors on the record) dated 14 June 2023. A response was received from GMM’s solicitors on 16 June 2023 that they intended to respond. No response was received. Follow-up emails were sent to those solicitors dated 5 July 2023 and 4 August 2023.

21    Further, JFI has become aware of certain transactions made from the GMM Transaction Account which appear to be personal expenses of the sole director of GMM, Lawrence Hargrave, and/or his family (Aff 1-Neil Jones [39]).

22    JFI’s stated purpose (Aff 1-Neil Jones [52]-[53]) is to access GMM’s documents in order to investigate:

(a)    The use of GMM’s funds in the GMM Transaction Account and whether GMM’s funds have been properly used and authorised to be used;

(b)    The whereabouts of the cash sale proceeds and whether GMM actually holds the Karora Shareholding;

(c)    Whether a third party might have been paid the cash sale proceeds and be holding the Karora Shareholding;

(d)    Whether there have been certain acts or omissions by GMM or its sole director that are:

(i)    contrary to the rights and interests of GMM and/or JFI and Lawhar as shareholders in GMM; or

(ii)    otherwise in breach of obligations owed to GMM and/or JFI and Lawhar as shareholders in GMM including acts or omissions that have, may have already have, or have the potential to diminish the value of JFI’s shareholding in GMM.

23    GMM opposes the application on the basis that the above concerns, and as to which Neil Jones was cross-examined, do not reflect the true nature of the dispute. It was submitted that the formulation of the alleged concerns may be properly described as “artificial, specious or contrived” for the purpose of seeking to bring the matter within the scope of s 247A.

Relevant principles

24    JFI’s application is brought in accordance with s 247A of the Corporation Act which provides:

(1)    On application by a member of a company or registered scheme, the Court may make an order:

(a)     authorising the applicant to inspect books of the company or scheme; or

(b)     authorising another person (whether a member or not) to inspect books of the company or scheme 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.

(2)    A person authorised to inspect books may make copies of the books unless the Court orders otherwise.

25    The principles relevant to an application brought pursuant to s 247A were summarised by Katzmann J (with whom Siopis and Gilmour JJ agreed) in Mesa Minerals Limited v Mighty River International Limited [2016] FCAFC 16; 241 FCR 241 at [22], drawing on the summary given by Debelle J in Acehill Investments Pty Ltd v Incitec Ltd [2002] SASC 344; 223 LSJS 97 at [29] and the additional principles identified by Gordon J in Hanks v Admiralty Resources NL [2011] FCA 891; 85 ACSR 101 at [32]. The Full Court has had occasion to revisit the principles more recently in Entares Pty Limited v Nimble Money Limited [2022] FCAFC 126; 294 FCR 31. I discern those principles to be as follows:

(1)    Section 247A(1) vests discretion in a court to make a relevant order once satisfied that the applicant seeking relief is acting in good faith and that the inspection is to be made for a proper purpose (emphasis added). It is therefore necessary to reach the requisite state of satisfaction by reference to the principles in Avon Downs v Commission of Taxation (1949) 78 CLR 353 at 360 before considering any residual discretion, if any: Entares at [36], [50].

(2)    The applicant bears the onus of establishing that it is acting in good faith and that the inspection it seeks is for a proper purpose: Praetorin Pty Ltd v TZ Ltd [2009] NSWSC 1237; 76 ACSR 236 at [36]; Intercapital Holdings Ltd v MEH Ltd (1988) 13 ACLR 595 at 602; Entares at [37].

(3)    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: Quinlan v Vital Technology Australia Ltd (1987) 5 ACLC 389 at 393.

(4)    It is not necessary that the applicant show that its interests are different to those of other shareholders: Yara Australia Pty Ltd v Burrup Holdings Ltd [2010] FCA 1273; 80 ACSR 641 at [116]; Claremont Petroleum NL v Australian Gas Light Co [1990] 2 Qd R 31.

(5)    The expression “acting in good faith and that the inspection is for a proper purpose” is a composite concept rather than two distinct requirements: Barrack Mines Ltd v Grants Patch Mining Ltd (No 2) [1988] 1 Qd R 606; Knightswood Nominees Pty Limited v Sherwin Pastoral Company Ltd (1989) 15 ACLR 151 at 156; Entares at [38]. That is to say, as Brooking J put it in Knightswood at 156:

[T]he reference to good faith colours and so reinforces the requirement of proper purpose. Acting in good faith and inspecting for a proper purpose means acting and inspecting for a bona fide proper purpose. It is as if the case was one of hendiadys.

(6)    Good faith and proper purpose must be proved objectively: Acehill, citing Barrack Mines; Knightswood at 156; Acehill at [29(1)]; Entares at [38]. See also the discussion in C Mantziaris, “The member’s right to inspect the company books: Corporations Act, s 247A” (2009) 83 ALJ 621 at 628–9.

(7)    The proper purpose asserted must be a primary or dominant purpose. It is irrelevant that an applicant may stand to benefit collaterally or incidentally: Unity APA Limited v Humes Limited (No 2) [1987] VR 474 at 480; Barrack Mines at 615; Entares at [38].

(8)    The proper purpose must relate to the rights of the applicant qua shareholder of the company: Ingram (As Trustee For The Ingram Superannuation Fund) v Ardent Leisure Ltd [2020] FCA 1302 at [74]; Entares at [40].

(9)    The intended purpose must relate to the shareholder’s rights and interests in that capacity in relation to the company or its directors: Entares at [41]; see also Hanks and Ingram.

(10)    To establish a proper purpose the applicant must do more than demonstrate it is dissatisfied with management decisions: Re Augold NL [1987] 2 Qd R 297 at 308; Cescastle Pty Ltd Renak Holdings Ltd (1991) 6 ACSR 115 at 117; Entares at [43].

(11)    Pursuing a reasonable suspicion of breach of duty is a proper purpose: Entares at [42]; McNeill v Hearing & Balance [2007] NSWSC 942 at [17] citing Barrack Mines Ltd v Grants Patch Mining Ltd (1987) 6 ACLC 97 as affirmed in Barrack Mines.

(12)    The investigation into the conduct of directors in relation to “the whereabouts, and commercial benefit [to] the company of the profit and cash flow” of the company for a certain period is a proper purpose: United Rural Enterprises Pty Ltd v Lopmand Pty Ltd [2003] NSWSC 404 at [27], [29]–[30]; Vinciguerra v MG Corrosion Consultants Pty Ltd [2007] FCA 503; 61 ACSR 583 at [57]–[59], [64], [66].

(13)    The applicant must establish that it is seeking to pursue the asserted legitimate purpose in good faith. Absent a reasonable basis or foundation for the asserted purpose, sometimes referred to as a “case for investigation”, it cannot be said that an applicant is acting in good faith: Mesa Minerals at [26] citing Intercapital Holdings and Knightswood; Entares at [45].

(14)    The court need not and should not decide substantive issues on the hearing of an application under s 247A (Hanks at [37]-[39]), but there needs to be something akin to some tangible support for the concern being something beyond mere belief or assertion: Praetorin at [94]; Entares at [47]. It is enough that the issue raised by the applicant is “substantive and not fanciful”, not “artificial, specious or contrived”: Style Limited, in the matter of; Merim Pty Ltd v Style Limited [2009] FCA 314; 255 ALR 63 at [66]–[67].

(15)    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: McNeill at [23]–[25].

(16)    The applicant must establish that it has a proper purpose in respect of each document or category of documents it seeks to inspect: Rasley (Singapore) Pte Ltd v Financial & Energy Exchange Ltd [2020] FCA 1462; Entares at [38].

26    Where the power to make an order under s 247A is enlivened, discretionary considerations of the kind identified by Brereton J in Re Tolco Pty Ltd [2016] NSWSC 1069 apply. The touchstone of discretion is what the court ought to require the company to tell its shareholder: Re Claremont Petroleum NL (No 2) [1990] 2 Qd R 310 (McPherson J). In Smartec Capital Pty Ltd v Centro Properties Ltd [2011] NSWSC 495; 83 ACSR 461, Barrett J concluded his analysis of the scope of s 247A of the Act as follows:

[68]    In Rowland v Meudon Pty Ltd (above) at [41], Bryson AJ referred to decisions of McPherson J and Warren J, respectively, in Re Claremont Petroleum NL (No. 2) [1990] 2 Qd R 310 and Czerwinski v Syrena Royal Pty Ltd (No. 1) [2000] VSC 125, (2000) 34 ACSR 245 and said:

“The references by McPherson J and by Warren J to information about matters of which a shareholder ought to be informed by the company are not references to information which the company has a legal duty to give to the shareholder. These observations were made in exposition of the operation of legislation which confers a broad discretion on the court, and the operation of that discretion extends to consideration of what the court ought to require that the company tell its shareholder, a different test to what the company has a legal duty to tell its shareholder. If the section was limited to providing means of enforcement for existing legal duties it would take an altogether different form, and the good faith requirement would not be appropriate. In my opinion the assignment of powers of management to the directors, and the non-involvement of shareholders in management of a company are important considerations. Business conducted in the corporate structure could readily be rendered inefficient or disrupted if this power became too ready a vehicle for examination by shareholders of management decisions and documents relating to them. However there is no rule of exclusion and no reason why involvement of a management decision should be a ground for refusal of access to documents; the matter is discretionary. With respect to management decisions a conservative approach to exercise of the discretion is appropriate.”

Have the statutory preconditions been satisfied?

Application by a member

27    For the purposes of the issue of standing to bring this application, the parties invited me to ignore the underlying dispute as to the basis on which JFI holds its 40% share in GMM. JFI is a member of GMM and has standing to bring the application.

Is JFI acting in good faith and for a proper basis?

28    There are subjective and objective considerations in the analysis of whether the court’s power under s 247A of the Corporations Act is enlivened. As Cheeseman J observed in Entares Pty Limited v Nimble Money Limited [2021] FCA 1596 at [53]-[54]:

…The court must ascertain as a matter of fact the applicant’s actual, that is, its subjective purpose. If the respondent wishes to challenge whether the applicant’s stated purpose is in fact its purpose or dominant purpose then it is necessary for the respondent to challenge the applicant in cross examination: Mighty River International Limited v Mesa Minerals Limited [2015] FCA 462 at [45] (Barker J); In the matter of Combined Projects (Arncliffe) Pty Ltd [2018] NSWSC 649 at [18] (Leeming JA); Rasley at [86] - [87]; Re Style at 79 [57].

The applicant’s subjective purpose is then assessed to ascertain whether objectively it is a proper purpose within s 247A of the Act: Acehill at [29(1)] applied in Hanks at [31] and Mighty River FC at [22(2)]. The applicant’s subjective view is relevant to, but will not determine, the outcome of that assessment: see e.g. Praetorin at 254 [89] - [93], Smartec at 475 [55] - [58]; Rasley at [36]. I note in this respect the observations in Rasley of Jackson J at [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).

29    JFI contends that it has established that it is acting in good faith and for a proper purpose on the basis that there is an objective basis for a suspicion of sufficient substance to demonstrate wrongful acts or omissions by GMM and/or its sole director. That suspicion of sufficient substance is said to arise from the following objective facts:

(a)    the absence of any information having been provided to JFI about the sale of the sole major asset of GMM or the whereabouts of the sale proceeds; and

(b)    the apparent use of GMM’s fund in the GMM Transaction Account for personal expenditure by the sole director of GMM.

30    GMM contends that JFI has not discharged its burden to establish the jurisdictional threshold for s 247A and challenged JFI’s subjective basis for bringing the application. It contends that the real case that JFI wishes to ventilate is a dispute about an agreement predating the incorporation of any of the relevant corporate vehicles as to how the proceeds of any future sale of the Lakewood Mill would be shared between the ownership interests in the Mill. Hence, it is said, this is a dispute between shareholders rather than a legitimate claim between shareholder on the one hand and the company and its directors on the other hand.

31    As to JFI’s subjective purpose, Neil Jones, as sole director of JFI, has sworn to his concerns as being, in summary, about: the use of funds in the GMM Transaction Account; the whereabouts of the sale proceeds of the sale of the Lakewood Mill to Korora Resources; and the potential acts and omissions that might, or may already have, flow from those matters which have already, or may have, the potential to diminish the value of JFI’s shareholding as being the purpose for the application (Aff 1-Neil Jones at [52]-[53]).

32    As to the use of funds in the GMM Transaction Account, Neil Jones deposes, in Aff 1-Neil Jones, to:

(a)    being unaware of any authorisation by GMM permitting the use of funds for the personal use of Lawrence Hargrave and/or his family: at [35];

(b)    being unaware of any authorisation by GMM permitting Lawrence Hargrave to draw a wage or salary from GMM funds: at [36];

(c)    being informed by Ben Jones, who conducted a review of the GMM Transaction Account from 1 April 2021 to 23 March 2023, that payments out of that account had been made with descriptions that indicated they were for personal goods and services, loan repayments and various cash withdrawals: at [31], [38].

33    Further, Neil Jones deposed to observing in the bank statement three deposits of $150,000 described as “GMM Transfer Pure Gold Pty Ltd”, it being a company of which Lawrence Hargrave is the sole director and shareholder and which was incorporated on 20 July 2022, seven days prior to the sale of the Lakeside Mill: Aff 1-Neil Jones at [41]-[42]. At its highest, this evidence raises no more than an inquiry about why the transfers were made, given the timing of them in proximity to the sale of the Lakeside Mill.

34    Neil Jones was cross-examined. GMM submitted that the cross-examination should cause the Court to give “serious scrutiny to the evidence” and that sufficient doubt has been cast upon the professed purpose of JFI. It was not put to Neil Jones that the purposes he had identified in paras [52] and [53] of his affidavit were not his true purposes in bringing the application, nor that they were improper. It was not put to him that his stated purpose was a contrivance. Rather, GMM sought to cast doubt on the veracity of Neil Jones’ stated purpose for the application by reference to the MinterEllison Letter.

35    Four aspects of that letter received particular attention. First was the apparent discrepancy between the breadth of the documents sought in the Originating Application as compared with the documents requested in para [20] of the letter. Second was the reference to the anticipated receipt of instructions to: (a) bring an application in an appropriate Court for an order for inspection of books of GMM pursuant to s 247A of the Corporations Act; and/or (b) commence legal proceedings in an appropriate Court in respect of the matters outlined in the letter. Third was the request for an explanation as to why GMM have not proposed the winding up and/or distribution of assets of GMM following the sale of its major asset. The fourth was the statement that MinterEllison acted for both Ben and Neil Jones, in addition to JFI.

The relevance of no prior request to the proper purpose of the application

36    As to the first matter, several categories of documents in the application of which inspection is sought were challenged partly on the basis that there had been no prior request for the documents. These included GMM’s constitution, minutes of GMM’s annual general meetings, documents relating to authorisation of personal expenses or wages and the reasons for such, financial statements and management accounts, bank statements, and credit card statements. GMM argued that the reason these documents had not been requested previously in the MinterEllison Letter was that they are irrelevant to the “true” dispute. It submitted that the more expansive categories of documents now sought are relevant only to the contrived dispute such that I should draw an inference that they are not sought in good faith for a proper purpose.

37    As outlined above, for the purposes of an application under s 247A of the Corporations Act, JFI must establish that they have a proper purpose relating to each category of document sought: Praetorin; Intercapital Holdings; Rasley; Entares. Neither the fact that JFI might already have had access to some of the documents at an earlier point in time, nor the fact that it might have been able to source the documents elsewhere is fatal to the application: McNeill.

Category 1 – GMM’s constitution

38    As to GMM’s constitution, it was submitted by GMM that JFI has not identified any reason why it needs the constitution to run the issue it says it wants to run and that this is evidenced by the fact that it was not requested in the MinterEllison Letter. Neil Jones agreed in cross-examination with the self-evident proposition that it had not been requested by that letter but maintained that JFI had sought it in the “early days of the company”, although he could not be “absolutely positive”. It cannot seriously be gainsaid that the provisions of a company’s constitution might be relevant to potential claims by shareholders against the company. By contrast, its relevance to the putative “real” dispute between JFI and GMM, being the terms on which JFI’s shares are held and/or the agreement about the proceeds of sale of the Lakewood Mill, is not readily apparent.

Category 2 – annual general minutes from GMM’s incorporation date

39    As to the minutes of annual general meetings of GMM from incorporation to date, Neil Jones deposed that, to his knowledge, no annual general meetings have ever been held (Aff 1-Neil Jones at [18]). In cross-examination, Neil Jones said that he knew there had been no annual general meetings. On the basis of that concession, GMM submitted that the request for the minutes amounts to no more than “idle curiosity” and could not therefore be within the bounds of a proper purpose in good faith. What is apparent from the evidence, however, is that GMM has engaged in at least one significant transaction of which JFI had no knowledge. It is conceivable that an annual general meeting has been held, also without JFI’s knowledge. If that is not the case, it will be a straightforward matter for GMM to respond to the request.

Category 3 – authorisation documents, salary authorisation, and associated reasons

40    The third category of documents requests any document, or record of information, that records any authorisation for Lawrence Hargrave’s use of GMM’s funds to pay for personal expenses, and the reasons for any such authorisation, and any authorisation of the payment of wages or salary to Lawrence Hargrave, and the reason therefore. This category is resisted on the basis, once again, that the request rises no higher than expression of idle curiosity and that the category was not sought by the MinterEllison Letter.

41    The bank statements for the period relevant to the request, and a summary of the “personal” transactions, prepared by MinterEllison, were exhibited to Aff 1-Neil Jones. Neil Jones was not cross-examined as to the accuracy of the summary. No evidence was led to contradict the summary.

42    In circumstances where there is cogent prima facie evidence that GMM’s funds have been used for Lawrence Hargrave’s personal expenses and/or salary, this request is not a matter of idle curiosity. One would ordinarily expect that such documents might exist and be relevant to a potential claim for breach of obligations owed to GMM and/or JFI and Lawhar as shareholders in GMM. Contrary to GMM’s submissions, there is no onus on JFI under s 247A to say how this category informs his decision-making process or how they would make any difference to what he wants to do: Entares at [42].

Categories 4 and 5 – documents and financial records relating to the Lakewood Mill sale

43    These documents were requested in the MinterEllison Letter and are not subject to GMM’s objection based on no prior request. The proper purpose of these documents is addressed later in these reasons.

Category 6 – financial statements and management accounts

and

Categories 7, 8 and 9 – bank statements, credit card statements

44    Category six seeks financial statements and management accounts. This category is resisted on the bases that it was not referred to in the MinterEllison Letter (unless it is captured by para 22(a) of that letter), and because it is unclear why they are needed to run the case JFI wishes to run.

45    Category seven seeks bank statements for the accounts operated by GMM as identified in Aff 1-Neil Jones from April 2023 to the present. These documents did not exist at the date of the MinterEllison Letter, so it is unsurprising that they were not requested in that letter.

46    Category eight seeks bank statements for any GMM operated account from 1 January 2021 to the present.

47    Category nine seeks credit card statements belonging to “NAB Cards” identified in the GMM Transaction Account statement from January 2021 to the present.

48    Particular attention was drawn to the apparent omission of any reference to the bank statements. GMM submitted that although the issue of the bank accounts loomed large at the hearing, it is clear that they are not the real concern of JFI because they were not mentioned in the MinterEllison Letter. The cross-examination was directed primarily at seeking to establish that JFI did not in fact need access to any of the books of GMM in order to pursue what it says is JFI’s “real asserted claim” and that, in any event, it had never requested the bank documents prior to making this application because, as Neil Jones conceded, “we had access to the bank accounts so we didn’t need to ask for that”. The fact that JFI had access to the information is not a factor precluding an order: McNeill at [23]-[25].

49    In cross-examination, Neil Jones accepted that, prior to bringing the application, JFI did not, in terms, request from GMM copies of bank statements and credit card statements as referred to in paragraphs [7]-[9] of the Originating Application. One reason for not doing so was that he continued to have access to the GMM Transaction Account until some date in March 2023, and to two accounts referred to in Aff 1-Neil Jones at [24]-[25]. However, he maintained that JFI needs the documents and rejected the suggestion that the terms of the application went beyond the documents requested in the MinterEllison Letter.

50    There is some force in Neil Jones’ interpretation of the requests made in the MinterEllison Letter. It specified, inter alia, any document or record or information, and any financial reports and financial records, which record the receipt of the terms of and proceeds of sale of the Lakewood Mill and details of any transfer of the funds or shares received from the sale by GMM to any third party. Further, it requested copies of the current financial accounts of GMM and year to date management accounts, and a detailed explanation of payments made from the GMM Transaction Account post the sale to certain named persons, and other payments out of that account post the sale.

51    Notwithstanding GMM’s challenge to the request on the basis that the document’s sought by Annexure A to the Originating Application are broader than those requested in the MinterEllison Letter, I am satisfied that JFI’s subjective purpose, in relation to all the above categories of document is as stated by Neil Jones in paras [52]-[53] of Aff 1-Neil Jones. Further, I am satisfied that, objectively, there is a proper purpose in seeking to inspect the above categories of documents in circumstances where there is at least some independent evidence that there may have been acts or omission and/or breach of obligations owed to JFI as a shareholder in GMM.

The relevance of flagging alternative proceedings to s 247A

52    GMM submitted that the threat to commence legal proceedings, other than just an application under s 247A, demonstrated that the “long shopping list of documents” so that JFI could properly investigate was just a contrivance because if it wants to sue, it can. In cross-examination, Neil Jones conceded, frankly, that sub-para (b) was a reference to legal proceedings other than an application under s 247A. It is not, however, inconsistent with the bringing of this application that other legal proceedings would be being considered by JFI. Nor is there any prohibition on an applicant receiving a collateral benefit from the inspection, provided the proper purpose asserted is a primary or dominant purpose: Humes; Barrack Mines; Entares.

53    I do not consider that the veracity of JFI’s subjective purpose is undermined by para [21] of the MinterEllison Letter.

The relevance of the request for an explanation about winding up GMM

54    The MinterEllison Letter requested a detailed explanation as why GMM has not proposed its winding up and/or distribution of its assets to shareholders following the sale of the Lakewood Mill given that the Mill was GMM’s major asset, and GMM’s historical purpose was to own and operate the Mill. In cross-examination, it was put to Neil Jones that he approved the relevant paragraph in the MinterEllison Letter because the explanation being sought was consistent with the pre-incorporation agreement reached in relation to the sale of the Mill.

55    Neil Jones agreed that his asserted position was that there was an agreement to distribute the sale proceeds of the Mill in accordance with the legal shareholding, but denied that he wanted GMM wound up to give effect to the agreement. He also denied he understood that the difference between his and Lawrence Hargrave’s position in relation to that asserted agreement is the question of the capacity in which JFI holds its shares in GMM. In particular, he denied any knowledge, at the time of making the application, that Lawrence Hargrave asserted that JFI held its shareholding only in the capacity as security for monies loaned to the company.

MR CUERDEN:    Mr Jones, when you made or when you caused the company to this application to the court under s 247A of the Corporations Act you were aware that Mr Hargrave had asserted that JF Investment Holdings (sic) holds its shareholding only in the capacity as security for moneys loaned to the company. And he has asserted that it does not hold its shareholding in a beneficial absolute sense. Now, I’m not asking you whether you agree with that. I’m just asking whether you understood when you made the application that was the position asserted by Mr Hargrave? --- No.

You did not understand that?--- No, never had been raised with me before.

It hadn’t been raised with you in text messages that you’ve attached to your affidavit. No. it (sic) had never been raised with you in text messages? --- Not in mine – not – not that I can recall.

56    That evidence cannot be accepted. In his own affidavit, Neil Jones deposed to having become aware of Lawrence Hargrave’s allegation in or about February 2022: Aff-3 Neil Jones at [8], [113]. Further, pp 293-304 of Annexure NJ-03 to Aff 3-Neil Jones is an email dated 17 February 2022 from Metaxas Legal to Ben Jones, copied to Neil Jones, attaching a proposed Deed of Settlement and Release between Ben Jones, Christine Jones, GMM, JFI, Lawhar, Neil Jones, and Lawrence Hargrave. The Recitals record, inter alia:

B     Between 3 October 2014 and 14 July 2015 Lawrence owned all of the issued shares in GMM.

C    On 14 July 2015 Lawrence transferred 48 of the issued shares in GMM to JFI. Lawrence alleges that the transfer of shares was as security for a loan advanced by Christine and Neil to GMM which has now been repaid.

D    JFI denies that the shares were transferred to JFI as security for the loan advanced by Christine and Neil to GMM.

57    Relevantly, one text message dated 9 June 2022, at p 175 of Aff 1-Neil Jones, included the following from Neil Jones to Lawrence Hargrave:

If getting 100% of the shareholding into your name is going to make sale easier (and I suspect that is part of the reason for the previous debacle) then there is no objection to what you previously proposed except basing it on resolution of a dispute.

58    A further text message, dated 4 March 2023 from Neil Jones to Lawrence Hargrave, at p 176 of Aff-1 Neil Jones, read:

This is a chance for us to get together and resolve whatever issues you have with me and Ben and for you to update me re GMM.

59    Neither of the text messages nor the draft settlement deed was put to Neil Jones in cross-examination, which was conducted via a Teams link and with Neil Jones only having access to his voluminous affidavits on his mobile phone. In the circumstances, I am not prepared to conclude that he was being deliberately dishonest in his evidence, but I do not accept that he did not understand the alleged dispute prior to bringing this application.

60    There is no doubt that there are multiple grievances between the various corporate and individual actors involved in this case. Whether or not Neil Jones accepts the timing of his knowledge about the apparent dispute between JFI and GMM as shareholders does not change the fact that he has, as I have found, a subjective proper purpose in investigating the potential cause of action between its rights qua shareholder of the company.

61    Further, there is objective evidence that GMM was incorporated for the primary, if not sole purpose, of acquiring and operating the Lakewood Mill: Aff 1-Neil Jones at [16]; Confidential Information Package May 2016, Annexure BCJ-01 pp 172-210, Aff-Ben Jones; correspondence between Ben Jones and PriceWaterhouseCoopers Annexure BCJ-01 pp 100-105, Aff-Ben Jones.

62    In the circumstances in which GMM was established, it is understandable that JFI would seek an explanation for the continued existence of GMM. That does not detract from JFI’s expressed concerns as to possible acts or omissions, or breaches of obligations, which might adversely impact the shareholders of GMM.

The relevance of MinterEllison’s retention by Ben Jones

63    The fourth matter concerns the fact that MinterEllison acts for both Neil and Ben Jones, and for JFI. Neil Jones was cross-examined about whether it was he or Ben Jones who was in fact giving instructions to MinterEllison. Neil Jones maintained that he gave instructions which “may well have been … endorsed by Ben”. He was also cross-examined as to Ben Jones’ role in the company. After first saying he was the “appointer to the company”, he subsequently accepted that Ben Jones was a joint appointer, with him, of the discretionary trust and denied having suggested that Ben Jones had the power to appoint directors of JFI. Ben Jones deposes to J F Milling Pty Ltd being set up as the corporate appointer to the Jones Family Trust, of which he and Neil Jones each hold a 50% share: Aff-Ben Jones at [89]. Again, in the circumstances in which the evidence was given, I draw no adverse inference from Neil Jones’ mischaracterisation of Ben Jones’ role within the corporate structure.

64    Neil Jones was also cross-examined about his son’s involvement in giving instructions to MinterEllison, particularly in the context that MinterEllison acts for Ben Jones personally, as well as for Neil Jones and JFI. It was submitted that the fact that MinterEllison also acts for Ben Jones “raises real issues not only as to the applicant’s bona fides (in the sense that the application must be made in good faith and for a proper purpose), but also as to the exercise of any discretion which might be enlivened under s 247A(1)”. GMM did not go so far as to identify positively some reason why Ben Jones might want access to the documents, but the submission was made that I should infer that Ben Jones has some potential case or claim against GMM because he has retained MinterEllison, and because of the central role he has been given as the person nominated to inspect the documents on behalf of JFI.

65    GMM did not submit that Ben Jones’ involvement is somehow unlawful or improper but pointed to the unexplained reason for Ben Jones’ instructions to MinterEllison in circumstances where the documents are confidential to the company, and may also affect third-party interests in maintaining confidentiality. No questions were put to Neil Jones about why Ben Jones had instructed MinterEllison. As has already been observed, Ben Jones was not required for cross-examination. I am unable to conclude that Ben Jones’ retention of MinterEllison to act on his behalf casts any aspersions on the asserted purpose of the application.

The Lakewood Mill sale documents

66    It is not disputed that the fourth and fifth categories of documents were the subject of request in the MinterEllison Letter. These categories relate to the sale of the Lakewood Mill. Category four requests any document or record of information which records the terms of the Lakewood Mill Sale and the receipt of the sale proceeds, including details of the transfer of any funds or shares to a third party. Category five is directed at the same topics but requests any financial reports or financial records.

67    I accept that JFI has a subjective proper purpose for seeking to inspect these categories of documents and that, on any objective basis, there is a proper purpose for so doing: United Rural; Vinciguerra). The evidence discloses that there has been no information given to shareholders about the sale of GMM’s only major asset. What information has been gleaned by JFI has come solely from two announcements on the purchaser’s website.

68    However, I accept GMM’s submission that category five is subsumed by category four.

Exercise of the discretion

69    The power having been enlivened, it is appropriate that I exercise my discretion to make orders pursuant to s 247A of the Corporations Act for the reasons that follow.

70    GMM’s opposition to the relief sought is premised on its contention that JFI does not need to inspect the documents sought in order to commence the threatened proceeding, which it anticipates will agitate what it says is the real dispute. That may be so; but in circumstances where JFI is pursuing a reasonable suspicion of a breach of duty, which may give rise to an altogether different dispute, and where there is evidence which provides prima facie support for that suspicion, it is appropriate that JFI be given the opportunity to pursue that investigation. GMM adduced no evidence to challenge JFI’s suspicion.

71    Further, to the extent that it was submitted by GMM that Ben Jones’ interest and proposed involvement in the inspection militates strongly, in the exercise of my discretion, against the making of the order, I reject the submission. Ben Jones’ affidavit was read and remained unchallenged. GMM elected not to cross-examine him.

72    Similarly, I was asked to draw an inference that some of the documents will be confidential, including to third-parties. GMM adduced no evidence as to confidentiality. In the circumstances, and where Lawrence Hargrave could have been expected to be able to give such evidence but did not, I am not prepared to draw that inference.

Disposition

73    It is therefore appropriate to make orders pursuant to s 247A in accordance with these reasons. The parties should attempt to agree the form of orders and the appropriate timeframe for the inspection, failing which short written submissions as to the competing positions may be made.

Associate:

Dated:    18 December 2023