Canavan v ICRA Rolleston Pty Ltd

In this significant case, the Court of Appeal considered whether an executory contract was a “financial record” which could be inspected under s 421(2) Corporations Act 2001 (Cth). The Court found this turned on the evidence of the terms of the contract, but that, in the absence of such evidence, the executory nature of the contract meant it was not a financial record.

Sofronoff P and Fraser and Mullins JJA

21 June 2022

The appellant is the sole director of ICRA Rolleston Pty Ltd (“ICRA”), which was interested in a joint venture which operated a coal mine in Queensland. [1]–[2]. One of the other joint venture parties appointed the respondents as receivers of ICRA. [2]. The receivers entered into a contract to sell ICRA’s interest in the joint venture. [1]. The appellant wrote to the receivers, seeking to invoke his right of inspection under s 421(2) Corporations Act 2001 (Cth) (“CA”). [2]. His application was refused, as was a consequential application to the Supreme Court for an order requiring the receivers to permit inspection. [2].

Before the Court of Appeal, the critical question was whether an executory contract of sale to sell ICRA’s interest in a joint venture was a “financial record” of ICRA for the purposes of s 9 CA, which would give the appellant rights of inspection under s 421(2) CA. The appellant submitted that the contract was either a “document of prime entry” for the purposes of paragraph (b) of the definition, or a working paper needed to explain the methods by which the financial statements were made up or explaining the adjustments to be made in preparing financial statements, for the purposes of paragraph (c). [5].

The Court found that whether a contract is a document of prime entry depends on its terms. [11]. Here, the contract was not in evidence, but the evidence before the Court showed that it was conditional upon obtaining the consent of third parties and that it was executory. [11]. As it was executory, “no income, liabilities or disposal of assets presently stem from” it. [9]. It followed that the contract was not a document of prime entry. [11]–[12].

The Court also found that, whether the contract fell into paragraph (c) of the definition of “financial record” depended on the terms of the contract, which were not in evidence. [13]. The Court found that reason enough to dispose of this argument. [14]. Going further, the Court stated that “whether a document was needed for any adjustment to be made depended upon whether an outcome was probable”. [16]. That too could not be determined without evidence about the contract and any contingencies to which it was subject. [16]–[18].

The Court further found that the contract might in the future, depending on the evidence as to its terms, become a “financial record”, but that without such evidence, it could not be concluded that the contract was a financial record. [19]. Accordingly, the appeal was dismissed with costs. [20].

M Paterson