Documents for the privileged few

Shareholder rights to obtain information may be restricted when legal privilege is at stakeSection 247A of the Corporations Law (a different number in the early years) was included in the Law to allow shareholders to obtain information or to inspect documents if they wished to pursue a case, say against an auditor or a director, for alleged breach of duty.

The courts have a discretion in those cases to allow the shareholder or someone acting on the shareholder's behalf (usually a lawyer or an accountant) to inspect the books of the company. But the applicant must act in good faith and the inspection must be made for a proper purpose. The right cannot be used for other purposes - for example, for circumventing limits that might be placed in the shareholder's placed through other legal rules.

In the case of Czerwinski v Syrena Royal Pty Ltd ((2000) Victorian Supreme Court 125) (reported in CCH Law Reports in (2000) 18 ACLC 337), Warren J of the Victorian Supreme Court refused an application for inspection in these circumstances (as taken from the report).

The relevant shareholder had been in a dispute with her company arising out of an intention on the part of the company to sell part of its business. Legal proceedings had been commenced in relation to this dispute. In the course of this litigation discovery of documents had been ordered. However, certain records were not produced on the grounds that they were protected by legal professional privilege. The shareholder then applied to the court under section 247A of the Law for an order to inspect the relevant documents. The shareholder argued that it was necessary for her to obtain the documents in pursuit of her rights as a shareholder.

The claim was initially challenged on the basis that it was an abuse of process of the court. However, the shareholder retorted by suggesting that she was applying under a specific provision of the law and therefore there could be no abuse of process.

The shareholder in pursuing her claim in relation to section 247A indicated there was a lack of adequate information as to the circumstances surrounding the disposition of certain proceeds following the sale of part of the company's business. Because of insufficient information the court expressed some concern as to whether the "applicant in the current proceedings ... is seeking to protect or investigate an investment made by her in relation to the business of the [company]."

Warren J dismissed the claim expressing these views about section 247A of the Law.

"[This section establishes] a discretionary power whereby if the court is satisfied that it is appropriate to do so it may order inspection and production of documents. In the circumstances of this matter, particularly the lack of evidence to demonstrate the true interests of the applicant in obtaining access to the documents other than the fact that she is technically a shareholder [of the company ... combined with the fact that there had been no effort to deal with the question of legal professional privilege which had protected the documents] leads me to conclude that the applicant does not seek the relevant documents ... for a genuine purpose." (at para 12)

The court then added these words which bear a clear warning that the section will not be able to be used in this way in the future.

"The approach of the applicant in the current proceeding has all the hallmarks of a tactical manoeuvre adopted to bypass difficulties and overcome the claim for legal professional privilege in the other proceeding. In this respect the applicant in the current proceeding seeks to use section 247A of the Corporations Law for an ulterior purpose. [The section] is intended to enable a member of a company to inspect books in order to obtain information about matters that, as a member or shareholder in the company, that member or shareholder ought to be informed of by the company. The procedure ... is not intended as a form or substitute for inspection of documents to overcome the obstacle of legal professional privilege claimed in other proceedings." (at para 12)

In all the circumstances the court dismissed the application.

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The purpose of this database is to provide a full-text record of all articles that have appeared in the CDJ since February 1997. It is aimed to assist in the research and reference process. The database has a full-text index and will enable articles to be easily retrieved.It should be noted that information contained in this database is in pre-publication format only - IT IS NOT THE FINAL PRINTED VERSION OF THE CDJ - therefore there might be slight discrepancies between the contents of this database and the printed CDJ.