Welcome to issue No.8 of Reflections, and what a busy first six months of 2005 it has been for us at Cornwall Stodart.

We have had new people join the firm, some promotions have occurred and some new sporting teams venture into unchartered competitions, the works! Some of the highlights for 2005 thus far, are detailed in the CS Update section of Reflections for you to read about.

One of the highlights for our personnel, is the promotion of Damien Wurzel to Partnership. It is always pleasing to see people who commenced their legal career with us, develop and be promoted within the firm.

And we have worked with some new and exciting clients in the first six months of 2005. Here are some of the things that have happened:

• We acted for Qenos Pty Ltd in a dispute over a pricing mechanism in a supply contract which occupied 4 trial days in the Supreme Court of NSW and involved petrochemical experts from the US Gulf Coast with evidence being given by video link (despite the timing issues).
  
• We acted for a community bank in developing the prospectus to attract investors.
  
• We acted for an Australian unlisted public company engaged in on-shore petroleum exploration activities in a “reverse” takeover of a United States public company (listed on an over the counter bulletin board in the United States), involving cross-border issues, in particular, the interrelationship of Australian and American securities law.
  
• We acted for an Australian ASX listed public company engaged in off-shore exploration activities in preparing documentation to put to its members for its fund raising activities which included private placements to US investors and a Share Purchase Plan.
  
• We have also begun working with a new client – Bicycle Victoria which is a community based not for profit organisation whose mission is more people cycling more often.

Bicycle Victoria have an upcoming event on Friday 24 June – “Breakfast with Phil Anderson” who is a 13 time rider of the Tour de France and will be speaking about the upcoming Tour de France. For more information on this event or if you want to know more about Bicycle Victoria, go to

www.bv.com.au

I ususally provide an update on our sporting prowess. We had yet another successful billiards tournament at the RACV Club against Bentleys MRI – the second straight win in a row. Our mixed netball team – The Whackers – have rested over the summer and the coming winter season and will be back on the court come Spring 2005. This year, we have fielded an indoor soccor team called The Nators and we wait to see how they fair in their first season of competition. Damien Wurzel and Sam Monkivitch also took to the golf course earlier this year at the annual AIPM Golf Day, with Damien on top of the leader board at the end of the day.

This first half of 2005 has been an especially significant period for me, having returned from a brief break from work, following the birth of my daughter Jordan.

I hope that you have all your business affairs are in order for the fast approaching 30 June deadline, and I look forward to bringing you our next edition just before calendar year end.

Michelle McLean, CEO

It is with great pleasure to announce that effective 1 July 2005, Damien Wurzel will become a Partner, and Louise Houlihan and Sam Monkivitch will advance to Senior Associateships.

 

LEI, IN THE MATTER OF TAI-AO ALUMINIUM (AUSTRALIA) PTY LTD v CORDUKES [2004] FCA 1488

Introduction
Section 290 of the Corporations Act 2001 (Cth) provides that “a director of a company, registered scheme or disclosing entity has a right of access to the financial records at all reasonable times”. The section supplements the position at common law, that a director has a right to inspect and make copies of the company’s documents in order to perform his or her duties in the interests of the company. Although this is an absolute right of directors, the court has the power to restrain a director from exercising this right if it is satisfied that the intention of the director is to materially injure the company.

In the case of Lei, in the matter of Tai-Ao Aluminium (Australia) Pty Ltd v Cordukes [2004] FCA 1488, Justice Finkelstein accepted the position at common law, but awarded costs to the unsuccessful plaintiff.

Facts
Mr Lei was a director of Tai-Ao Aluminium (Australia) Pty Ltd which was a subsidiary of Tai-Ao Aluminum Group Limited, a Hong Kong company of which he was also a director and substantial shareholder. He had presented a petition in Hong Kong requesting that the Hong Kong company be wound up for, amongst other reasons, being conducted in a manner unfairly prejudicial to him.

On 4 November 2004, Mr Lei (accompanied by his solicitor and son) attended the Sydney offices of the Company to inspect the Company’s records. At the offices, Mr Lei was met by Mr Cordukes (another director of the Company), who told Mr Lei that he would not be given access to the Company’s records and would need a court order to do so. As Finkestein J noted, the plaintiff “took up the challenge” and that same day applied to the court seeking orders for access and the right to make copies.

The other directors of the Company opposed the orders arguing that Mr Lei did not seek inspection of the documents for a legitimate purpose (ie. a purpose associated with the affairs of the company), but for an ulterior motive which included causing the Company harm. The directors of the Company (other than Mr Lei) sought an adjournment, which the court granted.

Before the hearing resumed, the other directors of the Company filed affidavits disclosing that:

1. the constitution of the Company provided that the directors may by resolution remove a director from office; and

2. a directors’ meeting was to be held where the directors would consider whether Mr Lei should be removed from office.

It was apparent that the resolution removing Mr Lei from office would be passed, as Mr Lei had no supporters on the board.

Decision
The judge held that, as Mr Lei would only remain as a director for a few more hours (before he was removed at the directors’ meeting), access to the company records should not be granted. As Mr Lei was no longer in a position where he could, in a practical sense, perform any duties of office, he no longer had any need for inspection.

Costs
Even though Mr Lei did not receive the relief he had sought, he claimed his costs against the defendants. In making his decision as to costs, Finkelstein J indicated that in exceptional circumstances a successful defendant might be ordered to pay the unsuccessful plaintiff’s costs.

Finkestein J explained that such circumstances may include:

“circumstances where the defendant’s conduct has “brought about the proceeding” or

“caused its continuance” or where the defendant “escapes the normal consequences of his blameworthy conduct by reason of some unexpected matter which he knew but which the plaintiff could not know.”

Finkelstein J held that this case contained such “exceptional circumstances” and ordered the defendants pay Mr Lei’s costs. Mr Lei had a right of inspection which was denied to him by the defendants (by the steps outlined in the affidavits) and the defendants should have known that Mr Lei was entitled to look at the Company’s documents (particularly after they sought legal advice).

Finkelstein J also noted that the defendants sought an adjournment to obtain further evidence that Mr Lei intended to use the information for an improper purpose. However, they did not obtain such evidence and instead convened a meeting ensuring Mr Lei’s removal from office. Finkelstein J indicated that “in all respects the defendants acted wrongly and should pay for their wrong doing”.

Conclusion
The case affirms the common law position of directors’ rights to inspection of company documents, which is absolute – and a party seeking to subvert that principle will be penalised.

For further information, please contact Stephen Newman on +61 3 9608 2219 or s.newman@cornwallsc.om.au or Wendy Bracciale on +61 3 9608 2286 or w.bracciale@cornwalls.com.au