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Canavan v ICRA Rolleston Pty Ltd[2022] QCA 110

Canavan v ICRA Rolleston Pty Ltd[2022] QCA 110

SUPREME COURT OF QUEENSLAND

CITATION:

Canavan v ICRA Rolleston Pty Ltd [2022] QCA 110

PARTIES:

JOHN PHILLIP CANAVAN

(appellant)

v

WILLIAM JAMES HARRIS, KEITH ALEXANDER CRAWFORD AND JASON PRESTON AS RECEIVERS AND MANAGERS OF ICRA ROLLESTON PTY LTD (RECEIVERS AND MANAGERS APPOINTED) (ADMINISTRATORS APPOINTED)

(respondent)

FILE NOS:

Appeal No 6747 of 2021

SC No 4006 of 2021

DIVISION:

Court of Appeal

PROCEEDING:

General Civil Appeal

ORIGINATING COURT:

Supreme Court at Brisbane [2021] QSC 98 (Flanagan J)

DELIVERED ON:

21 June 2022

DELIVERED AT:

Brisbane

HEARING DATE:

20 October 2021

JUDGES:

Sofronoff P and Fraser and Mullins JJA

ORDER:

Appeal dismissed with costs.

CATCHWORDS:

STATUTES – ACTS OF PARLIAMENT – INTERPRETATION OTHER MATTERS where a party to the joint venture appointed the respondents as receivers to one of the joint venturers (ICRA) and the receivers entered into a contract to sell ICRA’s interest in the joint venture – where the appellant is ICRA’s sole director and sought to inspect the contract under s 421(2) of the Corporations Act 2001 (Cth) and the respondents disputed his right to do so – where the appellant applied for an order requiring the respondents to permit inspection and the primary judge dismissed the application, concluding that the contract had not been shown to be a financial record within the meaning of s 421 – where the contract was not in evidence – whether the primary judge erred in interpreting the “financial record” in s 421(1)(d)

Corporations Act 2001 (Cth), s 9, s 421

Boulos v Carter (2005) 220 ALR 572; [2005] NSWSC 891, cited

Phillips v Corporate Affairs Commission (SA) (1986) 11 ACLR 182; [1986] SASC 9540, cited

COUNSEL:

D B O'Sullivan QC, with C A Wilkins, for the appellant

M R Hodge QC, with A R Langshaw, for the respondent

SOLICITORS:

Piper Alderman for the appellant

Arnold Bloch Leibler for the respondent

  1. [1]
    THE COURT: ICRA Rolleston Pty Ltd (“ICRA”), Rolleston Coal Holdings Pty Ltd (“Rolleston”) and Sumisho Coal Australia Pty Ltd (“Sumisho”) were parties to a joint venture agreement under which they owned and operated a coal mine in Queensland. Rolleston held a 75 per cent interest in the venture and the other two companies held a 12.5 per cent interest each. On 8 December 2020 Rolleston appointed the respondents as receivers to ICRA pursuant to its rights under a charge. In February 2021 the receivers entered into a contract to sell ICRA’s interest in the joint venture.
  1. [2]
    The appellant is ICRA’s sole director. On 1 April 2021 the appellant wrote to the respondents asking to inspect the contract. He was seeking to invoke his right of inspection under s 421(2) of the Corporations Act 2001 (Cth). The respondents disputed his right to do so and refused his request. Accordingly, the appellant applied to Flanagan J for an appropriate order that would require the respondents to permit inspection. Flanagan J dismissed the application and the appellant has appealed against that refusal.
  1. [3]
    Section 421 provides:

“(1)A managing controller of property of a corporation must:

  1. (a)
    open and maintain an account, with an Australian ADI, bearing:
    1. the managing controller’s own name; and
    2. in the case of a receiver of the property—the title “receiver”; and
    3. otherwise—the title “managing controller”; and
    4. the corporation’s name;

or 2 or more such accounts; and

  1. (b)
    within 3 business days after money of the corporation comes under the control of the managing controller, pay that money into such an account that the managing controller maintains; and
  2. (c)
    ensure that no such account that the managing controller maintains contains money other than money of the corporation that comes under the control of the managing controller; and
  3. (d)
    keep such financial records as correctly record and explain all transactions that the managing controller enters into as the managing controller.
  1. (2)
    Any director, creditor or member of a corporation may, unless the Court otherwise orders, personally or by an agent, inspect records kept by a managing controller of property of the corporation for the purposes of paragraph(1)(d).”
  1. [4]
    The expression “financial records” is defined as follows in s 9 of the Act:

financial records includes:

  1. (a)
    invoices, receipts, orders for the payment of money, bills of exchange, cheques, promissory notes and vouchers; and
  2. (b)
    documents of prime entry; and
  3. (c)
    working papers and other documents needed to explain:
    1. the methods by which financial statements are made up; and
    2. adjustments to be made in preparing financial statements.”
  1. [5]
    The appellant has submitted that the contract is a “financial record” within the ordinary meaning of that term and that it also falls within paragraphs (b) and (c) of the definition.

Document of Prime Entry

  1. [6]
    The expression “document of prime entry” is not defined in the Act. The appellant invoked two decisions in support of his case that the contract for the sale of the company’s joint venture interest was such a document. The first of these cases was Phillips v Corporate Affairs Commission (SA). [1]
  2. [7]
    In that case Olsson J was concerned with the meaning of “accounting records” in the context of a statute that obliged a company to keep “such accounting records as correctly record and explain transactions of the company and the financial position of the company”. The definition of “accounting records” was also an inclusive one:

“‘accounting records’ includes invoices, receipts, orders for the payment of money, bills of exchange, cheques, promissory notes, vouchers and other documents of prime entry and also includes such working papers and other documents as are necessary to explain the methods and calculations by which the accounts are made up”. [2]

  1. [8]
    The Corporate Affairs Commission served a notice upon the company to produce “all books relating to the affairs” of the company but Olsson J held that that wide description had to be limited to the kinds of books that the statute obliged a company to keep. The question was, therefore, whether the contracts were accounting records of a kind that a company had to “keep” in order to “correctly record and explain transactions”. It was in that context that Olsson J had to consider whether the contracts were “documents of prime entry”. His Honour observed [3] that the section that obliged the company to keep “accounting records” used that expression “according to its widest possible normal connotation to encompass the full normal accounts required to be maintained by a company”. Accordingly, his Honour said that a contract for the sale of goods to be manufactured may well be capable of being a document of prime entry or could otherwise constitute part of the books of a company or other documents bearing upon dealings with its assets or the incurring of liabilities”. [4]
  1. [9]
    The contracts with which his Honour was concerned were contracts pursuant to which the company was to manufacture goods for sale to a customer. One of these two contracts obliged the company to manufacture goods for the customer but only when a prototype had been accepted. It followed, said his Honour, that until that contingency was fulfilled “no income, liabilities or disposal of assets presently stem from [the contract]”. [5] However, there was undisputed evidence that the “consummation of [the second contract] could well be a highly relevant factor bearing upon what, if any, allowance for amortisation of intangible assets ought to have been provided for in true and fair accounts”. [6] Accordingly, his Honour held that the first contract was not an “accounting record” of the kind that had to be “kept” as a document that “correctly record[s] and explain[s] the transactions of the company and the financial position of the company” but the second contract was. His Honour also said that “dependent upon their detailed provisions”, which his Honour did not have before him, the contracts might well be documents of prime entry but Olsson J did not decide that issue.
  1. [10]
    At least at first instance, the appellant relied upon other cases that decided that contracts could be documents of prime entry.[7]
  2. [11]
    Those cases show that whether or not a contract has that character depends upon its terms. [8] The contract in this case was not in evidence; all that is known about it is that the contract was conditional upon the obtaining of consent from third parties and that it was executory.
  1. [12]
    Two experts gave evidence, one called by each side, about whether the contract was a document of prime entry. The appellant’s expert, Mr Stavrou, agreed that not every contract of sale of property would be a document of prime entry but that “at some point in time” a contract will become a document of prime entry.[9] In this case all that is known about the contract, relevantly to this point, is that it is still executory. For these reasons, Flanagan J rejected the submission that the contract was a document of prime entry. We respectfully agree with that conclusion and the reasoning that supports it. On the appellant’s best case, there was no evidence to make good the submission.

Working documents or documents to explain

  1. [13]
    Mr Stavrou offered a similarly limited opinion upon this issue. He said that a contract for the sale of an asset could be a document that is needed to explain the method by which financial statements are made up. However, he explained, that whether or not a contract actually had that character depended upon the probability of its consummation at the time that the question is asked. Until that is known, he said, a conclusion cannot be drawn one way or the other.[10] In this case the contract was not in evidence. Its terms are unknown. Nobody could say whether, according to Mr Stavrou’s definition of the expression, the contract fell within it or outside it.
  1. [14]
    For that reason, in our respectful opinion, Flanagan J was right to conclude that the appellant had failed to make its case on that issue.
  1. [15]
    The appellant also submitted that the contract was a document that was needed to explain the adjustments that are to be made in preparing financial statements. In our respectful opinion, that is a difficult argument to sustain when the content of the contract is not known.
  1. [16]
    As Mr Stavrou pointed out, whether a document was needed for any adjustment to be made depended upon whether an outcome was probable.[11] The same principle applied to deciding whether a contract was a document of prime entry.[12] Olsson J had taken the same approach in the case before him because he determined the issue of whether either of two contracts fell within the relevant description as a question that required evidence. The appellant’s problem was that there was no evidence to determine an issue which, on the appellant’s case, was crucial to its success.
  1. [17]
    Contrary to the appellant’s submission on this appeal, Flanagan J did not erroneously interpret the concept of a financial record so that, as the appellant submits, no contract of sale can ever constitute a financial record because it is not a “source” document.[13] His Honour concluded merely that the contract had not been shown to be a financial record within the meaning of the section. That is why he dismissed the application. But his Honour did not reach that conclusion by reasoning that the contract was not a “source document”.[14]
  2. [18]
    His Honour reached that conclusion in part because his Honour appreciated, as the appellant’s submission does not, the distinction between a document that records and explains a transaction, being a financial record, and a document that merely evidences the transaction itself.[15] The same distinction was observed by Barrett J in Boulos v Carter[16] where his Honour said that financial records are documents that correctly record and explain the company’s transactions and financial position and enable true and fair financial statements to be prepared. His Honour said that contracts are too remote from the compilation of financial statements even though their effects will inevitably be reflected in those statements so that those contracts are accounted for. Barrett J did not have to decide whether certain contracts fell within the statutory definition because the defendant receivers disclosed the contracts without admitting that they were obliged to do so.[17]
  3. [19]
    The appellant’s argument by way of reductio ad absurdum does not improve his case. The notion that the construction preferred by Flanagan J leaves receivers of companies free to destroy the company’s contracts is too far-fetched to be taken seriously. Nor can it be accepted that the result of his Honour’s conclusion is that “there does not exist any financial document that records or explains the sale”. His Honour’s conclusion was only that the contract did not fall within the statutory definition. It may be that the time has not yet arrived for the receivers to create a document in accordance with the obligation imposed by s 421. Perhaps when certain conditions precedent in the contract or conditions subsequent have been fulfilled, that time will arrive. In the absence of evidence that the appellant could have compelled the respondents to produce one simply does not know.
  1. [20]
    For these reasons we would dismiss the appeal, with costs.

Footnotes

[1] (1986) 11 ACLR 182.

[2]Companies (SA) Code, s 5(1).

[3]Phillips, supra at 190 - 191.

[4]Ibid at 190.

[5]Ibid at 191.

[6]Ibid at 191.

[7]Re ICRA Rolleston Pty Ltd [2021] QSC 98 at [27]-[29].

[8]Van Reesema v Flavel (1992) 7 ACSR 225; Commonwealth Bank of Australia v Tabet [2008] VSC 161.

[9] AB at 227.35 to 227.45.

[10]Re ICRA Rolleston Pty Ltd, supra at [44].

[11] AB at 225.10 – 225.26 10 to 26.

[12] AB at 227.35 to 46, 228.01 to 228.05.

[13] Appellant’s Outline [12].

[14]Ibid.

[15] Flanagan J’s reasons [55].

[16] (2005) 220 ALR 572 at [34].

[17]Ibid at [13].

Close

Editorial Notes

  • Published Case Name:

    Canavan v ICRA Rolleston Pty Ltd

  • Shortened Case Name:

    Canavan v ICRA Rolleston Pty Ltd

  • MNC:

    [2022] QCA 110

  • Court:

    QCA

  • Judge(s):

    Sofronoff P, Fraser JA, Mullins JA

  • Date:

    21 Jun 2022

Litigation History

EventCitation or FileDateNotes
Primary Judgment[2021] QSC 9818 May 2021-
Notice of Appeal FiledFile Number: CA6747/2115 Jun 2021-
Appeal Determined (QCA)[2022] QCA 11021 Jun 2022-

Appeal Status

Appeal Determined (QCA)

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