Lam Kit Sing v. Chungshan Commercial Association, Hong Kong

HCMP 2574/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 2574 OF 2010

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BETWEEN

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Before: Hon Harris J in Court

Date of Hearing: 13 April 2011

Date of Decision: 19 May 2011

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D E C I S I O N

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1.I have before me an application made under article 93 of the Defendant’s Articles of Association and section 121(3) of the Companies Ordinance for an order that the Defendant, and I quote from paragraph 1 of the Originating Summons:

“1. do permit copies of the following documents to be taken by the Plaintiff:-

(a) copy of the Defendant’s cheque no. 370391 dated 24^th March 2010, drawn on The Hongkong and Shanghai Banking Corporation Limited and payable to Messrs. K. C. Ho & Fong for HK$300,000 (“the 1^st Cheque”);

(b) copy of the Defendant’s cheque no. 370534 dated 5^th October 2010, drawn on The Hongkong and Shanghai Banking Corporation Limited and payable to Messrs. K. C. Ho & Fong for HK$31,500 (“the 2^nd Cheque”);

(c) copy of the Defendant’s cheque no. 370536 dated 5^th October 2010, drawn on The Hongkong and Shanghai Banking Corporation Limited and payable to Messrs. K. C. Ho & Fong for HK$300,000 (“the 3^rd Cheque”);

(d) the Defendant’s “分錄傳票” (Journal Voucher) dated 24^th March 2010 and headed “雜項按金” (Miscellaneous Deposit) in respect of the 1^st Cheque;

(e) the Defendant’s “分錄傳票” (Journal Voucher) dated 5^th October 2010 and headed “律師費” (Solicitor’s Fees) in respect of the 2^nd Cheque;

(f) the Defendant’s “分錄傳票” (Journal Voucher) dated 5^th October 2010 and headed “會務活動費” (Activity Fees for the Association’s Affairs) in respect of the 3^rd Cheque;

(g) Messrs. K. C. Ho & Fong’s receipt dated 24^th March 2010 and issued to the Defendant for HK$300,000;

(h) Messrs. K. C. Ho & Fong’s receipt dated 12^th October 2010 and issued to the Defendant for HK$31,500; and

(i) Messrs. K. C. Ho & Fong’s receipt dated 14^th October 2010 and issued to the Defendant for HK$300,000; and”

2.The Plaintiff is one of 97 directors of the Defendant.  The Defendant is a non-profiting making company.  I have little information about its activities, but as its name suggests it was formed, in April 1967, to promote the interests of people from Chungshan.  There is currently a dispute between various factions within the Board of Directors, which has resulted in litigation, the details of which are not relevant to the present application, but which is the background against which it is made and probably explains the unconstructive stance that the Parties have adopted to one another and which has led to it.

3.On the afternoon of 30 November 2010 the Plaintiff inspected, as he was entitled to, the financial documents identified in the Originating Summons (“Documents”).  Although it is not stated in the Plaintiff’s evidence it is apparent from the degree of detail with which the Documents are indentified in the Originating Summons that the Plaintiff must have copied down the information contained on them.  Mr Vaughan, who appeared for the Plaintiff, told me he was not able to confirm this, but accepted that it seemed probable. In so far as the Originating Summons seeks an order, as it does, that the Plaintiff be permitted to take copies of the Documents it is misconceived as he has already been allowed to do so and there is no suggestion that he cannot, if he so wished, inspect them again and copy information contained on them.  As the hearing developed it became apparent that what the Plaintiff in fact wants is for the Defendant to provide photocopies of the Documents.

4.I would say at the outset that in my view this application, and the way it has been approached by both parties, is a waste of time and the court’s resources.  No reason has been given by the Plaintiff for requiring more than the information that he obtained from inspecting the Documents and copying their contents in November 2010.  No practical reason has been given by the Defendant for not simply providing photocopies.  Both the Parties have taken a purely legalistic position.  The Plaintiff says that as a matter of law he is entitled to photocopies of the documents regardless of whether or not he needs them, and the Defendant takes the opposite view.  Mr Barlow, however, who appeared for the Defendant, accepted that the Plaintiff was entitled to take notes of any Documents he was entitled to inspect and did not actively dispute, although he did not expressly accept, that the Plaintiff could also take copies of the Documents by other non-destructive means such as by taking a photograph, which is perfectly practical, given their limited number, on a digital camera or a mobile telephone.

5.The issue I, therefore, have to decide, there being no point taken on the wording of the Originating Summons, is whether or not a director of a company is entitled to be provided with a photocopy of a document that he is entitled to inspect.

6.Articles 93 of the Defendant’s Articles of Association provides that “The books of account shall be kept at the registered office of the Association, or at such other place as the Board of Directors shall determine and shall be open to the Directors’ inspection.”  This Article largely follows the language of section 121(3) of the Companies Ordinance.  The language of the Articles is clear and simple.  It makes no reference to copies.  I can see no sensible reason for thinking that at the time the Defendant was formed the subscribers, assuming that any thought was given to the matter, which I accept is doubtful, intended Articles 93, despite its language, to entitle a director to a photocopy of any books of account; assuming for the present that the Documents are books of account.  I think it reasonable to assume that in 1967 photocopiers were relatively rare in Hong Kong and particularly in a company such as the Defendant.

7.Section 121(1) to (3) of the Companies Ordinance provides:

“(1) Every company shall cause to be kept proper books of account with respect to‑

(a) all sums of money received and expended by the company and the matters in respect of which the receipt and expenditure takes place;

(b) all sales and purchases of goods by the company;

(c) the assets and liabilities of the company.

(2) For the purposes of subsection (1), proper books of account shall not be deemed to be kept with respect to the matters aforesaid if there are not kept such books as are necessary to give a true and fair view of the state of the company’s affairs and to explain its transactions.

(3) The books of account shall be kept at the registered office of the company or at such other place as the directors think fit, and shall at all times be open to inspection by the directors:

Provided that if books of account are kept at a place outside Hong Kong there shall be sent to, and kept at a place in, Hong Kong and be at all times open to inspection by the directors such accounts and returns with respect to the business dealt with in the books of account so kept as will disclose with reasonable accuracy the financial position of that business at intervals not exceeding 6 months and will enable to be prepared in accordance with this Ordinance the company’s balance sheet, its profit and loss account or income and expenditure account, and any document annexed to any of those documents giving information which is required by this Ordinance is thereby allowed to be so given.

(3A) Any books of account which a company is required by this section to keep shall be preserved by it for 7 years from the end of the financial year to which the last entry made or matter recorded therein relates (Added 6 of 1984 s. 87)”

8.As is immediately apparent section 121(3) makes no reference to a director being entitled to copies of the books of account. Section 121(3) is in the same terms as section 147(3) of the Companies Act 1948.  This provision was first introduced in the 1948 Act.  It was absent from the 1929 Companies Act.  As photocopiers did not become commercially available until after 1948 necessarily the legislature when enacting section 147(3) would not have had in mind copying other than by, what would have then been the normal method, namely, copying by hand the contents of the document.  This in my view explains the judgment of Lindley LJ in Mutter v Eastern and Midlands Railway Co (1888) 38 Ch D 92 (CA) at which he says at page 107:

“Similar observations apply, though less forcibly, to sect. 45 of the Act of 1845 and sect. 28 of the Act of 1863. But it is obvious that a shareholder or debenture stockholder may desire to consult the whole of the debenture stockholders on some matter which concerns them all, and it is reasonable to suppose that the right to inspect the debenture stock register is conferred to enable him to do this as well as for other purposes. Parliament having conferred the right to inspect, the Court ought not so to construe the statute as to render the right conferred illusory, and if the Court were to hold that in such a case as the present the right to inspect existed but the right to take copies did not, the Court would in effect be rendering the statute of no avail.”

Section 28 of the Companies Clauses Act 1845 gave a right to inspect and peruse the register of debenture stock-holders to, amongst others, shareholders.  It did not give an express right to copy the documents that could be inspected.  Given the date of the judgment it is clear that when Lindley LJ discusses copying, in the passage quoted above and in the previous 2 pages, he is referring to make a manuscript copy of the contents of the document.

9.As I have already observed Mr Barlow does not dispute in the present case that the Plaintiff had the right to make a manuscript copy of the Documents as he inspected them.  He draws, however, a distinction between this incidental right to make a copy during inspection and the right to be provided with a copy.  He submits that this is to be contrasted with section 120(2) of the Companies Ordinance, which gives a member an express right to be furnished with a copy of any minute of general meetings.  This demonstrates that if the legislature intended a company to be obliged to provide copies of documents it would have included such a right.  Further, argues Mr Barlow, the established canon of statutory construction is that the creation of an express right can only occur expressly or by clear implication: Craies on Legislation, 9^th ed., paras. 12.1.1 to 12.1.4.  There is no reason, particularly given the express alternative provisions of section 120(2) which is based on section 121 of the Companies Act 1929 and thus predates the English equivalent of section 121, to assume that the legislature intended a company to be under an obligation to provide copies.

10.Mr Vaughan contended in his written submissions that a director is free to take copies of documents during inspection.  He cited 3 cases in support of this submission: Re Grand Sino International Ltd. (HCMP 4616/2001, unreported judgment of Kwan J of 28 June 2005); Law Wai Duen v Boldwin Construction Co Ltd [2001] 4 HKC 403 and Re Carry Strong Dyeing Factory Limited (HCMP 1050/2007, unreported judgment of Kwan J of 15 June 2007).  For reasons I have already explained I accept that this is correct and the 3 authorities Mr Vaughan relies on illustrate this.   However, as became clear during the hearing this is not the issue.  The issue is whether or not a company is obliged to provide photocopies assuming it has the facilities to do so.

11.My conclusion is this.  The right given by section 121(3) to inspect a company’s books of account is there to assist a director to carry out his duties.  He may take copies of such documents by any method that modern technology makes practical.  This includes copying the contents by hand or by using some photographic process.  Because of the prevalence of photocopying machines it most likely to be by photocopying and one would expect, if people are behaving sensibly, a director to be able to obtain copies of documents that he has inspected using the company’s copying machine and possibly staff.  If for some reason he is not able to use the company’s photocopying facilities, perhaps, for example, because the documents are located in premises that do not have one, I agree with Kwan J in paragraph 13 of her Ladyship’s judgment in Re Carry Strong Dyeing Factory Limited supra, that the director is entitled to remove them for a short time in order to copy them unless there is some good reason why he should not do so.  This in my view is no different from a director being entitled to move documents he wishes to inspect from a dark storage room in which reading and making a note of the contents of the documents is not possible to a location in which they can be read.

12.In my view this application was both unnecessary and wrongly formulated and I therefore dismiss it with costs to the Defendant.

Mr Joseph Vaughan and Mr Vincent Lung, instructed by Messrs Hom & Associates, for the Plaintiff

Mr Barrie Barlow, SC leading Mr Adrian Leung, instructed by Messrs K C Ho & Fong, for the Defendant