Wong Kar Gee Mimi v. Hung Kin Sang Raymond and Another

HCMP 1602/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 1602 OF 2010

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BETWEEN

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Before: Hon Harris J in Court

Dates of Hearing: 26 January and 10 March 2011

Date of Judgment: 30 August 2011

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J U D G M E N T

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Introduction

1.This is an application by an amended originating summons issued by Wong Kar Gee Mimi (“the Plaintiff”), a shareholder of the 2^nd Defendant, Applied Development Holdings Limited (“the Company”), for production of various documents of the Company.  The application is made against both the Company and the 1^st Defendant, Hung Kin Sang Raymond (“the 1^st Defendant”), who is a director of the Company.  The application is made against the 1^st Defendant solely for the purposes of seeking an order that he pay the costs of the application on the basis that it is he who directs the decisions of the Company and that he should be liable, rather than the Company’s shareholders, for consequences of the Company’s decisions.  At the time the application was issued, the Plaintiff was a director of the Company and production of documents was sought on the basis of her entitlement qua director.  Shortly before the matter came on for hearing before me on 26 January, the Plaintiff was removed as a director.  This required the application to be adjourned and recast as one seeking an order for documents (the ambit of what was sought was reduced) pursuant to section 152FA of the Companies Ordinance.  It is not in dispute that the Plaintiff has sufficient shareholding in the Company to make the application, as required under section 152FA(2) of the Ordinance.

2.By the time argument before me had concluded, the Company had agreed in principle to produce a number of the documents that were sought.  The Company however, still objected generally to the production of its subsidiaries’ documents.  It also contested the Plaintiff’s right to the production of various categories of documents, which I deal with later in this judgment.  The Company’s position was that if the court did not accept that all the Plaintiff was entitled to was what the Company offered to disclose voluntarily, then it did not accept that the Plaintiff had demonstrated a proper purpose and, therefore, that the Plaintiff was entitled to any documents at all.  The practical consequence of this for the court is that the determination of the application has to be approached on the basis that the entire application (in its final narrowed form) is contested.  Other than not disputing bona fides, the Company has not, from the court’s point of view, conceded anything.

3.The 1^st Defendant and Plaintiff were formerly husband and wife, and co-founded the business of the Company and its subsidiaries (together, “the Group”) in 1975.  Until recently, they were both directors and shareholders of the Company.  The Company, which was originally engaged in electronic manufacturing but by 2003 became involved in property investment and property holding, was incorporated in Bermuda in 1986.  Since 24 March 1986, its shares have been listed on the Hong Kong Stock Exchange.  The Company carries on its business principally through its subsidiaries in Hong Kong, China, Panama and the BVI.

4.The Plaintiff alleges that since late 2009, she has been aware of a number of questionable transactions which have caused her to be concerned about the manner in which the 1^st Defendant has been conducting the affairs of the Company and the Group.  In particular, and which I will address in greater detail below, she contends that she has serious concerns regarding the potential misapplication of the Group’s assets from 2007 to 2010, concerns that have, in her view, gone unexplained.  It is in the light of these concerns that the Plaintiff makes the present application.

5.The Plaintiff and 1^st Defendant are now divorced (the decree absolute was granted in March 2010) and seeking the determination of ancillary relief: see generally H v H (Public Company: Imposed Director) [2011] 1 HKLRD 1048, at paras 1-47, for a detailed background of the dispute, including the marital history of the parties.  Moreover, from 1998 to 2010, the Plaintiff and 1^st Defendant owned a substantial number (in excess of 400 million) of shares (or over 45% of issued shares) beneficially in what has been described as a “family trust”.  However, on 30 June 2010, the 1^st Defendant submitted a Form 3A to the Hong Kong Stock Exchange, which recorded a reduction in the Plaintiff’s percentage of total shares in the family trust from 49.47% to 1.11%, leaving her with 9,310,056 shares.  There is thus a substantial and acrimonious dispute between the Plaintiff and 1^st Defendant as to the ownership of the family shares which serves as the backdrop to the present application.

6.Finally, it is important that, as I have already noted, the Plaintiff is no longer a director of the Company.  On 14 January 2011, the Company’s shareholders, in an Annual General Meeting, voted against the resolution to re-elect the Plaintiff as director.  For this reason, the Plaintiff was forced to effectively abandon (although this was never formally conceded) her original application based on her rights to inspection as a director of the Company.  Under that application, her right to inspect the Company’s documents would have flowed from her duties as a director and would have been governed by well-established common law principles.  As it stands, the Plaintiff is now limited to an application for the inspection of documents in her capacity as a shareholder under the new provision contained in section 152FA.  This has made the application more complex than might otherwise have been the case and necessitates initially an assessment of the circumstances in which a shareholder is entitled to production of documents, which involves construction of the relevant legislative provision, section 152FA.  In particular, the questions of construction to be resolved are:

(i) Are the two requirements of “good faith” and “proper purpose” independent or one single requirement?

(ii) What is the scope of the requirement of “proper purpose”?

(iii) Is a member entitled to inspect documents of the Company’s subsidiaries?

Section 152FA: Applicable legal principles

7.Section 152FA was incorporated into the Ordinance through the Companies (Amendment) Ordinance 2004, and came into force on 15 July 2005.  This is the first application under the section to be brought to court.[1]

8.Section 152FA provides:

“(1)  Subject to sections 152FD and 152FE, on application by such number of members of a specified corporation as is specified in subsection (2) (in this section referred to as “applicant”), the court may make an order —

(a) authorizing the applicant or any one or more of such members applying as applicant to inspect any records of the specified corporation; or

(b) authorizing a person (whether or not a member of the specified corporation) other than the applicant to inspect any such records on behalf of the applicant.

(2) …

(3) The court may only make an order under subsection (1) if it is satisfied that —

(a) the application is made in good faith; and

(b) the inspection applied for is for a proper purpose.

(4) …

(5) …”

9.Section 152FA essentially codifies and expands upon the common law right of a company’s members to examine the company’s “records”.[2]  For these purposes, “records” is defined in section 2(8A) of the Ordinance as including “book and paper”.  “Book and paper” is in turn defined under section 2(1) to include “accounts, deeds, writings and documents”.  This liberal definition of “records” suggests that section 152FA prima facie entitles shareholders of a company to be granted generous access to corporate information in order to protect their interests in the company.

10.However, as section 152FA(3) makes clear, the court’s discretion to grant an inspection order is subject to the qualification that the application is made in good faith and that the inspection applied for is for a proper purpose.  Due to its recent enactment, there is a relative dearth of Hong Kong authorities dealing with the scope and effect of the section and the interpretation that it should be accorded.  In considering whether an application for an inspection order is made for a “proper purpose”, it is therefore of assistance to consider several Australian authorities which dealt with the Australian equivalent of section 152FA (and which section 152FA was modelled after).

Does “good faith” and “proper purpose” create one single requirement?

11.The first question which arises is whether section 152FA(3) constitutes a two-fold requirement in that “good faith” and “proper purpose” comprise genuinely independent conditions which must be separately satisfied, or whether the two conditions in practise constitute one single requirement.

12.In Knightswood Nominees Pty Ltd v Sherwin Pastoral Company Limited (1989) 15 ACLR 151, Brooking J, referring to the Australian equivalent of section 152FA, indicated at 156 that the two requirements were intertwined and expressed a “composite notion”:

“… I am disposed to think that, notwithstanding the way in which [the section] is constructed, all that the reference to good faith does is remind us, first, that the proper purpose set up must not be a mere pretence, and, secondly, that in considering purpose it will be necessary to go beyond the mere desire to obtain information by the inspection of books and ask what the applicant wishes to achieve as a result. Putting the matter another way, I am disposed to think that the section requires the court to be satisfied that the applicant is acting, or that the inspection is to be made (there being no distinction here), “in good faith for a proper purpose” and that this expression is a composite one, it being artificial to assign some consideration to good faith rather than purpose or vice versa. If, for example, a member seeking inspection is motivated by idle curiosity, or has in mind harassment, or even blackmail, or wishes to obtain confidential information for the benefit of one of the company’s competitors, it seems to be unnecessary and fruitless to consider whether the case is one of absence of good faith or absence of a proper purpose. On the approach which I am inclined to favour, the reference to good faith colours and so reinforces the requirement of proper purpose. Acting in good faith and inspection for a proper purpose means acting and inspecting for a bona fide proper purpose.”

13.However, in the recent case of Lehman & Co Management Limited v Effiscient Limited, unreported, HCCW 377/2010, 13 July 2011, Coleman SC, sitting as a Deputy High Court Judge, opined at §33 that, notwithstanding the view of Brooking J, the “good faith” and “proper purpose” requirements constituted two separate and independent tests:

“33. I accept that I am required to treat the two parts of subsection 152FA(3) as in reality a composite expression. But I do not think that that is equivalent to saying that once one has proved a proper purpose, good faith has also been established; that would be to break the composite expression back into its component parts and then to ignore one of them.”

14.I agree with Deputy Judge Coleman SC that Brooking J’s view is unsustainable and that the “good faith” and “proper purpose” requirements constitute two separate and independent tests.  To be sure, there are numerous instances in which the requirement of good faith “colours and reinforces” the requirement of a proper purpose.  Indeed, in a great deal of cases, where a member is acting for an improper purpose, it logically follows that he is not acting in good faith.  The scenarios referred to by Brooking J, such as a member who seeks inspection but is motivated by harassment or blackmail, exemplify this.  But that is not the same as saying that just because a member is acting in good faith, he necessarily has a proper purpose for seeking the inspection.  In this regard, it appears to me that the two tests under section 152FA(3), to some extent, lay down a subjective and objective test: the applicant must first establish that he believes his purpose in applying for an inspection order is proper (ie that he is acting in good faith) and secondly, the court must believe the circumstances are such that the inspection applied for is for a proper purpose.

15.This is consistent with the view of Williams J in the earlier case of Re Augold NL (1987) 5 ACLC 286, where the question of good faith was clearly distinguished from the question of proper purpose in a similar manner.

16.That is also, I think, what was meant in Barrack Mines Ltd v Grants Patch Mining Ltd (No 2) (1987) 12 ACLR 630, when the court accepted at 637 the definition of good faith for the purposes of section 152FA as being “honesty and with no ulterior motive.” In other words, the requirement of good faith merely requires that the applicant himself act “honestly” with a purpose that he himself believes to be proper.  The requirement of “proper purpose” however, is an objective test that calls for the court to look at all the surrounding circumstances and to determine whether the purpose for the inspection order was indeed, proper.  This is a more difficult and elusive question to which I now turn to deal with.

What constitutes a “proper purpose”?

17.It is perhaps apposite to begin by considering the rationale for a shareholder’s right to have access to a company’s documents. According to the interpretation of the American equivalent of section 152FA (which it appears the Australian section was founded upon – see Unity APA v Humes (No 2) [1987] VR 474 at 477), the basis of a member’s right to inspection flows from his proprietary interest in the company, evidenced and expressed by the shares he holds:

“Although there may be reasons of public policy why the stockholders of a corporation should have the right to examine its books and records, the primary basis for that right is not public policy, but the private and proprietary interest of stockholders, as owners of the corporation … Thus, shareholders are granted generous access to corporate information. This policy recognizes the possessory or membership interests held by these individuals in the corporate entity and affirms the shareholder’s right to know how his or her agents, the corporation’s decisionmakers, are conducting the affairs of the organization”: 18A American Jurisprudence 2d 2004, §289.

18.Although a member does not have a proprietary interest in the assets of a company, he has a very real economic interest in the company itself.  In my view, he can reasonably expect to be able to protect this interest and section 152FA facilitates this by providing the member with access to corporate information, which might not otherwise be available to him.

19.As to the question of what constitutes a “proper purpose”, §304 of 18A American Jurisprudence 2d 2004 states this:

“Since the right of inspection grows out of the stockholder’s relationship to the corporation, and is given to the stockholder for the protection of his or her interests therein, it is generally recognized that the right is properly qualified by the requirement that it be exercised for purposes germane to one’s status as a stockholder. This is the rule both at common law and under most statutes. Stated another way, a proper purpose for a request for corporate information is one that is not harmful to the corporation or its shareholders and can be surmised where the shareholder’s purpose requesting the information bears some reasonable relationship to the interests that the shareholder wants to protect by seeking the inspection”.

20.The principle that a purpose is proper only if it is “germane to [the applicant’s] status as a stockholder” or “reasonably related to the interest of such person as a member or stockholder” has subsequently been adopted in a number of Australian cases: Barrack Mines, supra, per Ryan J at 630; Knightswood Nominees, supra, per Brooking J at 156-157.

21.It has also been said that once the primary or dominant purpose for the application for inspection is deemed by the court to be “proper” in that it is germane to the applicant’s status as a shareholder, then any further or secondary purpose in seeking the records is irrelevant: Unity APA supra, at 480-481; approved in Barrack Mines, supra, at 639.

22.The corollary of this proposition is that so long as the applicant acts in good faith and for a proper purpose, then the fact that there is hostility between the parties is equally irrelevant and is no bar to an application for an inspection order: Unity APA, supra, at 479.

23.Whether an applicant has satisfied the court that it is acting in good faith and for a proper purpose pursuant to section 152FA(3) is ultimately a question of fact to be determined in each case: 18A American Jurisprudence 2d 2004, §299; adopted in Lehman v Effiscient Limited (supra) per Deputy Judge Coleman SC at para 35.  Thus, it may be that the fact that an applicant may have only recently acquired a small holding in the company is strong evidence that the application is either not made in good faith or not for a proper purpose: Quinlan v Vital Technology Australia Limited (1987) 5 ACLC 389.  Conversely, an application made by a substantial and long-standing shareholder may in and of itself discharge the burden of establishing good faith and proper purpose: Barrack Mines v Grants Patch (1987) 12 ACLR 357, at 366.

24.I accept all of these propositions as being correct.  In my view, section 152FA affords shareholders an often overlooked yet powerful right by which to expose wrongful conduct in relation to the company’s affairs.  Where the shareholders and directors are at loggerheads, the right of access to corporate information is particularly important: in these circumstances, even if a member suspects that something is amiss, for example an egregious breach of fiduciary duty, he will be unable to protect his economic interest and financial investment within the company (through, for instance, a derivative action) unless he is able to obtain sufficient information.

25.By enacting section 152FA, the legislature provided an important new procedure for the protection of shareholder rights and interests and the community’s more general interest in the maintenance of good corporate governance.  Section 152FA should therefore be interpreted and applied in a manner consistent with these legislative objectives.  This can be achieved through taking a generous approach to the interpretation of what constitutes an interest “reasonably related” or “germane” to the applicant’s status as a shareholder.  Given that a member’s status is based entirely on his shareholding in the company, I am inclined to think that where the purpose for seeking an inspection order is founded upon the protection against a change in the value of a member’s shares, that purpose is “germane” to his status as a shareholder and “proper” under section 152FA.  Put another way, where a member seeks to protect his economic interest in the company, this should prima facie satisfy the “proper purpose” requirement.

26.That, I think, was what the drafters of the American equivalent of section 152FA meant, when they said in §286-288 of 18A American Jurisprudence 2d 2004:

“§286. … The primary purpose of these inspection statutes, like that of the common law right, is to protect small and minority shareholders against the mismanagement and unfaithfulness of their agents and officers, by providing a stockholder with a simple, practical and expeditious procedure for obtaining inspection of the corporate books and records. The fact that a shareholder may also have discovery rights when engaged in a lawsuit with a particular corporation does not eliminate the statutory right of inspection.

§287. …

§288.   Statutes providing for inspection by stockholders should be liberally construed in favour of stockholders, particularly in enforcing the inspection rights of stockholders in a close corporation, at least in the absence of a satisfactory showing of bad faith on their part.”

27.Not all courts have taken this view.  In the Lehman case, Deputy Judge Coleman SC opined that the court would only exercise its discretion to grant an inspection order under section 152FA in exceptional and rare cases.  Relying on the Unity APA case, supra, he explained, at paras 36-38:

“36. [Counsel for the applicant] suggested that the section is intended to provide to a shareholder rights analogous to, or parallel to, the common law right of directors to inspect company documents. I accept that the rights of inspection might be similar, but I am not sure that the analogy is quite apposite. First, the directors’ common law right to inspect documents is a corollary to, and to facilitate, the directors’ obligation properly to manage the company. Secondly, the statute provides jurisdiction to the court to permit a shareholder certain rights of inspection, the precise scope of which (if granted at all) can be tailored to suit the particular circumstances of the individual situation. It seems to me that the grant of any rights of inspection to a shareholder, subject to the control of the court, is likely to be very much the exception rather than the norm.

37. Indeed, in [the Australian case of Unity APA v Humes (No 2) [1987] VR 474] Breach J accepted as a principle, at 478, that an order would ordinarily only be made where the applicant member had some specific and/or personal right which could only be protected by the making of such an order.

38. I agree.  This identifies the likely rarity of orders under the section.  For example, if the shareholder can obtain appropriate protection under the discovery process in ongoing litigation, it is unlikely that an order under the section is the only means of protection.  Also, if the shareholder had, but failed to utilise, other options or remedies open to him to protect or have protected his specific or personal rights, it will unlikely be said that an order under the section is the only means of protection.”

28.I have no doubt that Deputy Judge Coleman SC is correct in his observation that shareholder inspection rights are founded upon distinctly different justifications from those relating to director rights of access to corporate information.  Indeed, and as I have already discussed above, whilst a director’s right to inspect the company’s records depends directly on the director’s fiduciary obligations in relation to the company, a shareholder’s right of inspection originates from the shareholder’s interest in the company vis-à-vis the rights that the shares in which he holds embraces.

29.I find it harder to accept the suggestion of both Breach J and Deputy Judge Coleman SC, namely, that the proper purpose criteria would only normally be satisfied where the applicant has a specific or personal right which can only be protected through the inspection of the relevant records of the company.  A member might wish to inspect documents because of a genuine and credible belief that there has been corporate mismanagement which is adversely affecting the economic welfare of the company, or where the member seeks to ascertain the fair market value of his shares.  In both cases, it may be said that no specific or personal right exists which may only be protected through the grant of an inspection order.  Yet at the same time, prima facie, the legitimate economic interests of the member as shareholder of the company are at stake, and an inspection of company records may be the only means of ensuring such interests are safeguarded.  Particularly in the case of the former example I have difficulty accepting that the proper purpose criteria would not be satisfied.  In my view, if the evidence proved that the concern was bona fide and had a credible foundation, I think a “proper purpose” would be established.

30.I accept, however, that in practise it is likely that an inspection order would most commonly be granted in cases where an applicant shows that a personal right could only be protected through the making of such an order, but this would be a consequence of cases based on more general concerns as to, for example, corporate governance being by their nature less precise and harder to substantiate.  It would not follow from “proper purpose” being a restricted and narrow concept.  As I have already explained, in my view the court should incline to a liberal interpretation of “proper purpose” with a view to advancing the protection of shareholder rights and interest and the maintenance of appropriate standards of corporate governance.

31.This is particularly true in the case of publicly listed companies, such as the Company in the present application.  As Brooking J observed in Knightswood Nominees, at 159, the court should be more willing to grant inspection orders to protect the interests of members in publicly listed companies:

“… I think that a more active role may be called for from the court in a matter of this kind. The traditional view is that the court is there simply to resolve disputes between parties. My own experience, especially in this List, suggests that there are many serious breaches of duty in relation to the affairs of listed public companies. Usually, if these are brought to light it is in litigation commenced by a major shareholder. The major shareholder is concerned with his own interests, not those of shareholders generally, and later the litigation may be compromised and that is the end of the affair. While the court cannot and should not seek to constitute itself a regulatory agency in the interests of the shareholders generally and of commercial morality, there will be occasions when some step is appropriate. [The section] itself recognises the possible interest of the [National Companies & Securities Commission] in information acquired in the course of an inspection under [the section] … The Commission has many claims on its limited resources. The public interest will be served by requiring the plaintiff to make available to the Commission a convenient summary of the results of the inspection as well as making available upon request the detailed information”.

32.I agree.  I am of the opinion that situations involving potential abuse within large companies, particularly publicly listed companies, are amongst the types of mischief that it is reasonable to assume that the legislature in enacting section 152FA had in mind shareholders being able to address through greater access to information.  A member of such a company, if he suspects possible misconduct relating to the company’s affairs, should be able to quickly and easily obtain information in order to allow other shareholders, and perhaps even regulatory bodies, become aware of any potential transgressions.   In such situations, the court is in a position to assist a shareholder by increasing transparency in large, public companies, and protect against serious, sophisticated breaches of duty.   That is why section 152FB allows the court the discretion to make ancillary orders it considers appropriate, including an order permitting the applicant to disclose information obtained through the inspection order to any person, such as a regulatory body.

33.This approach is further supported by the Unity APA case (supra), where it was held at 480 that the need to keep other members informed of suspicious conduct in the company may well be an important justification for granting an order:

“[Section 152FA] gives every shareholder the right to apply for an order for inspection. It is no answer to such an application to say that if such order is made that shareholder will be learning something not known to other shareholders and thus be in a more advantageous position. Indeed, in certain cases, such an argument could well be used by a shareholder in support of his application on the footing that the company is withholding information advantageous to shareholders and that if the applicant is given access he can ensure other shareholders become equally well informed”.

34.In practise, this essentially means that once an applicant under section 152FA has established a proper purpose, the company should be required to be transparent.   The court should be slow to accede to arguments advanced by the company which are intended to encourage a restrictive approach to what a shareholder is allowed to inspect.

35.That is not to say, however, that the section is without limits.  Notwithstanding my view that a liberal interpretation be accorded to the section, I am mindful too that a balance needs to be struck.  Mr Manzoni, on behalf of the Company, invited the court to adopt the reasoning in Re Augold NL (supra), where Williams J, at 370, recognised that adopting too wide of a construction of section 152FA could result in an encroachment of managerial decisions by members of the company:

“The creation of a statutory right to inspect company documents with the leave of the court should not, in my view, be regarded as affecting the basic rule of company law which has stood for many years: that a shareholder ought not ordinarily have recourse to the courts to challenge a managerial decision made by or with the approval of its directors. That principle is one of the underlying presumptions on which the rule in Foss v Harbottle (1843) 2 Hare 461 is based, and it is reflected in many recent judgments dealing with challenges to decisions made by directors (and in the trust situation by trustees, where an analogous rule is applied”.

36.I accept this limitation.  The section is not an opportunity for shareholders to undermine entrenched company law principles and challenge the commercial decisions of the company’s management.

37.Mr Manzoni also objected to a liberal construction of the section on policy grounds.  In his skeleton argument, he submitted that “… to make an order in such circumstances would open the “floodgates” to unscrupulous applications made by minority shareholders”.  I recognise that too much liberality may encourage frivolous applications brought by disgruntled members. This concern can be addressed in at least two ways.

38.First, the requirement of “proper purpose” necessarily requires that only purposes that are germane to the applicant’s status as a member of the company are “proper”.  It may be thought that adopting an interpretation of “proper purpose” tied to a definition of shareholder interest that includes economic interest effectively encompasses the vast majority of the company’s affairs, thereby opening the door to unwarranted vexatious claims.  I do not accept that this is so.

39.The wording of section 152FA(1) clearly states that “on application by such number of members of a specified corporation … the court may make an order”.  In other words, even if an applicant is able to show that the application was made in good faith and for a proper purpose, the court may, in its discretion, ultimately consider that there is an insufficient prospect of anything useful resulting from the grant of the inspection order.  This is in line with Brooking J’s statement in Knightswood Nominees (supra), at 157:

“… an application must show that the inspection is to be made for a proper purpose. Often the applicant’s case will be that he wishes to inspect the books because something wrongful or untoward has occurred or is going to occur in relation to the company’s affairs, or because he believes that there has been or will be such an occurrence. As part of his proofs in establishing a proper purpose the applicant seeks to show that there is at least a case for investigation as regards past or future wrongful or other undesirable conduct. If he is unable to show that he has some reasonable ground for believing that misconduct or maladministration (or whatever else is suggested) has taken place, or is going to take place, he may well fail to establish the prerequisite, the court may, as a matter of discretion, consider that not enough is shown to warrant its intervention, there not being a sufficient prospect that anything useful will come out of the proposed inspection. The American cases show, as one would expect, that the shareholder may fail to obtain inspection where he fails to make out on his own material some kind of case for investigation, or where the corporation is able by leading evidence to dispel whatever suspicion has reasonably been aroused”.

40.The court’s discretion means that notwithstanding that an applicant has satisfied the court that he seeks the company’s documents for a proper purpose, he is not entitled to abuse this entitlement by going on a fishing expedition through vast amounts of the company’s records in search of a cause of action to support his mere suspicion of wrongdoing.  A shareholder is not entitled to substitute an inspection order under section 152FA for a pre-action discovery exercise: Re Claremont Petroleum NL (No 2) [1990] 2 Qd R 310, per McPherson J at 314.  Such an approach would be excessively intrusive and beyond what is reasonably necessary, thereby defeating the qualification inherent in the proper purpose requirement.

41.Put another way, the section plainly requires that the court be satisfied that the applicant actually has a sufficiently reasonable “case for investigation” by examining “what the applicant actually wants to achieve” before exercising its discretion to intervene and grant the inspection order: see also Lehman & Co Management Limited (supra) per Deputy Judge Coleman SC at para 45.

42.Second, in applications under section 152FA, the burden of proof of establishing good faith and proper purpose is borne entirely by the applicant.  Mere assertion is insufficient, as the applicant must adduce sufficient evidence as to the basis upon which he advances his application: Chuen v Laredo [2005] WASC 58 at paras 59-60.  This is in direct contrast to the case of a director’s right of access to a company’s records.  As Mr Dawes submitted in his skeleton for the 1^st Defendant: “Unlike s 121 [of the Ordinance] where the onus is almost on a company to show why it is denying books of account to a director, s 152FA puts the burden squarely on the applicant”.

43.In my view, these limitations will help curtail the number of vexatious applications brought by disgruntled members seeking to resolve personal disputes or seeking inspection orders for purposes inimical to the interests of the company.  

Is an applicant entitled to inspect documents of the company’s subsidiaries?

44.The Plaintiff in the present case wishes not only to obtain the records of the Company, but also the records of the subsidiaries of the Company (iethe Group).  Mr Barrie Barlow SC, for the Plaintiff, submitted that unless section 152FA is construed as including such documents, its effectiveness will be greatly curtailed as many companies, particularly publicly listed companies, operate their businesses through subsidiaries.

45.The way in which Mr Barlow summarises his submissions in respect of this part of his case in paragraph 16 of his document entitled “Plaintiff’s Additional Submissions on the construction of S.152FA of the Companies Ordinance” is as follows: “Upon both a fair reading of the language of s.152FA itself and on any purposive construction of s.152FA within its statutory and social context, “any records of the specified corporation” includes any records owned by or possessed as of by right the specified corporation – which includes those relating to or maintained by its wholly-owned subsidiaries”.

46.I accept that records emanating from a subsidiary, which become owned by or possessed as of right by the specified corporation come within “records of the specified corporation”: Re Tecnion Investments Ltd [1985] BCLC 434 (CA) per Dillon LJ at 437d-439e; Innovisions Ltd v Chan Sing Chuk & others [1992] 1 HKC 348 per Kaplan J at 354C-356D.  Accordingly, documents that have been passed by a subsidiary to the Company, whether to enable the Company to comply with its obligations arising under statute, delegated legislation or Stock Exchange Rules (for example, to produce consolidated accounts), or because the Company requires the subsidiary for commercial reasons and by reason of its managerial control over the subsidiary is able to direct its documents are so provided, become the Company’s “records” for the purposes of section 152FA.  However, I do not agree that a subsidiary’s documents, copies of which have not been passed to the Company, and which it is not obliged and able at the time any order is made to obtain, come within section 152FA.  My reasons for reaching this conclusion are as follows.

47.The language of the section is precise.  It refers to inspecting records of the specified corporation.  In my view it is clear that this is a reference to the records of the company in which the applicant is a shareholder.  The documents of a subsidiary are not the documents of its parent company, and they are not within the power of the parent company: see In Re Gold Pleasure Co Ltd, unreported, HCCW 49/2006, 29 March 2007, at para 7.  This is generally understood to be the position in Hong Kong and English law.  If the legislature had intended the section to cover documents of a subsidiary, of which a parent company did not have a copy and was not entitled to obtain, it is reasonable to have expected language to have been used which made this clear.  This did not happen.  On the contrary, precise language that suggests the opposite was used.  I do not, therefore, think that there is room to give section 152FA the wide interpretation Mr Barlow urges.

48.I note that that this approach is consistent with that taken in Re Dernacourt Investments Pty Ltd (1990) 2 ACSR 553, where it was said that the Australian equivalent of Section 152FA could not be used to gain access to the records of a subsidiary.

49.In conclusion, I do not accept that the Plaintiff is entitled to inspect records of the Company’s subsidiaries, unless copies of such documents have come to form part of the Company’s own records.

Proper purpose

50.It has not been suggested in the present case that the Plaintiff was not acting in good faith in the making of her application. What is said instead by Mr Manzoni on behalf of the Company is that the Plaintiff has not satisfied the court that she seeks an inspection order for a “proper purpose”.  In this connection, Mr Manzoni submitted that the Plaintiff seeks the documents in question for an ulterior purpose other than that which is germane to her status as a shareholder.  He argued that this was evident from the fact that the Plaintiff’s initial attempt to gain access to the documents was through her capacity as a director.  Despite the fact that she is now no longer a director, all of the evidence filed “aims towards discharge of the functions of a director, rather than to the legitimate purposes for which a member may seek documents”: Company’s Skeleton, paras 25-26.

51.In Mr Manzoni’s submission, the ulterior purpose for which the Plaintiff seeks an inspection order is to obtain personal information on the alleged mistress of the 1^st Defendant, her former husband, so that she can continue to harass him.  In the alternative, Mr Mazoni argues that the ulterior purpose for the application is so that the Plaintiff can obtain evidence for use in her ancillary relief proceedings against the 1^st Defendant.

52.Mr Barlow submits that the inspection of the Company’s records is sought for a proper purpose, the purpose being to investigate real concerns including the misapplication of the Group’s assets.  The Plaintiff relies on the following matters:

(i) The unexplained depletion of substantial cash received by the Group from 2007-2008 (a total of approximately HK$63.41 million);

(ii) The apparent misuse of the Group’s funds to benefit the 1^st Defendant’s alleged mistress, Ms Betsy Chen (“Ms Chen”) by paying salary and allowances when she was not an employee of the Company and paying renovation expenses for her personal residence;

(iii) The apparent misuse of rental generated by two properties in the PRC owned by the Group from 2008 to 2009 in the aggregate amount of RMB9,893,520;

(iv) The apparent misuse of the Group’s funds through the making of a significant donation to the Ms Chen’s alma mater, the University of Chicago, in accordance with the 1^st Defendant’s directions, although there is no apparent reason why it might have been thought to be a legitimate donation for the Company to make and allegedly the donation was never authorised by the board of the Company; and

(v) The employment of Ms Chen for no apparent commercial reason.

53.As I understand it, there has also never been board approval for any of the payments, nor has there been any record of board minutes or resolutions approving such payments.  Despite the excuses advanced by the Company for what has taken place, it does seem to me that there is reason to question what has taken place and whether the reality is that the 1^st Defendant has been allowed by the Board to use the Company to finance what in reality are his personal expenses and peccadilloes.  In my opinion, taken together, all of these complaints are sufficiently germane to the interests of the Plaintiff as shareholder to engage section 152F.  There are, I think, reasonable grounds for suspecting that misapplication of the Company’s assets may have taken place, and that such misapplication would potentially have an adverse effect on the Plaintiff’s economic interests as a shareholder.

54.In reaching this conclusion, I am cognizant that the backdrop to this case is a bitter and acrimonious divorce between the Plaintiff and the 1^st Defendant which has involved much litigation and which is likely to have coloured the Plaintiff’s view of the 1^st Defendant’s actions and his degree of control over the Company.  The facts of the case, involving, inter alia, the removal of the Plaintiff as a director of the Company, as well as the depletion of her shares in the family trust, illustrate the hostility between the two parties.

55.But as I have accepted, where the court is satisfied that the applicant is acting in good faith and for a proper purpose, hostility between parties is of little relevance and is no bar to an application under section 152FA: Unity APA, supra, at 479.  Indeed, as Deputy Judge Coleman SC observed, hostility may often be the explanation for the application in the first place: Lehman, supra, at para 35.  In practise, it may well be that the impetus necessary to overcome the apathy, which probably causes many shareholders to do no more than grumble about perceived misfeasance, and cause a shareholder to go to the time and expense of making an application to court is the presence of animus.  This is not, however, a reason by itself to refuse an order.

56.It may well be the case that, as Mr Manzoni suggests, the Plaintiff is partly motivated by a desire to harass the 1^st Defendant and to some extent, to create a nuisance.  But it seems to me, on the evidence, that the Plaintiff also has demonstrated a legitimate concern, and at this stage it can be put no higher than that, as regards the misapplication of assets of the Company.

57.In my view it is also relevant that the Company is publicly listed.  In such circumstances, it seems to me that the Court can properly take into account when assessing “proper purpose” the desirability of protecting against breaches of fiduciary duty by bringing the information to the attention of other shareholders in a general meeting, or to the attention of a relevant regulatory body.

58.The fact that the Plaintiff may also be seeking to obtain the inspection order for the purposes of harassing or embarrassing the 1^st Defendant is neither here nor there.  As the Unity APA case, supra, indicates, once a dominant purpose for the application is proved to be “proper”, it is irrelevant that there may also be a secondary, ulterior purpose that is improper.

59.In that case, Unity APA, which was involved in a takeover bid for Hume Ltd, sought to inspect the books of Humes after Humes acquired assets of a third company, with the effect that Unity’s shareholding in Humes was substantially diluted.  Breach J allowed the application, holding that the dominant purpose of the application was to ascertain whether the directors of Humes were in breach of their duties in respect of the proposed acquisition of the third company, and to use this information to determine whether or not to oppose the proposal.  This was, in the judge’s view, a proper purpose, and it was irrelevant that a secondary purpose for the application might have been for Humes to obtain assistance in its takeover offer.

60.That, it seems to me, is similar to the factual matrix of the present case.  The Plaintiff’s dominant purpose for the present application is to obtain information for the purposes of investigating misconduct relating to the Company’s affairs, such as the unauthorised payment of bonuses and the unauthorised hiring of Ms Chen.  Taken together, these purposes are sufficiently germane to the Plaintiff’s status as a shareholder, and it matters not that an ulterior purpose of the Plaintiff is to harass the 1^st Defendant.

61.In the circumstances, on the evidence before me, I am therefore satisfied that a “proper purpose” has been made out.

Categories of Documents

62.This leaves the argument of whether or not the documents sought are all properly required.  At the hearing before me, both the Plaintiff and the Company produced draft orders which they proposed I make.  As I explained earlier, supra para 2, the Company agreed in principle to provide certain categories of documents for the period from 1 January 2006 to the date of any order the court should make.  It was further agreed that the production of documents would be restricted to those relevant to the aforementioned transactions or concerns that the Plaintiff relied upon as her grounds of inspection, supra para 53. 

63.The categories of documents which the Company has agreed to give include:

(i) Contracts and agreements of the Company (§1.1);

(ii) Journal entries and vouchers of the Company (§1.3);

(iii) Banks statements and other evidence showing receipt and payments in respect of all bank accounts opened in the name of the Company (§1.4);

(iv) Minutes of all meetings of the board of directors of the Company and of all committees established by the board of directors of the Company (§1.7); and

(v) Minutes of all general meetings of the Company (§1.9).

64.What remains in issue are the documents of subsidiaries, as well as the following specific categories of documents:

(i) Monthly management accounts of the Company (§1.2);

(ii) Ledgers and supporting documents of the Company (including any instructions given by the 1^st Defendant or any other directors of the Company) (§1.3);

(iii) Payroll records of the Company (§1.5);

(iv) Employer returns submitted by or on behalf of the Company to the Inland Revenue Department in respect of employees employed by or on behalf of the Company (§1.6);

(v) Correspondence and communications between the Company and the Company’s legal advisers (§1.10 and §1.14);

(vi) Correspondence and communications between the Company and the Hong Kong Stock Exchange (§1.11);

(vii) Correspondence and communications between the Company and the Company’s accountants (§1.12); and

(viii) Reports prepared by the Company’s accountants for the Company (§1.13).

65.I have already addressed the question of the subsidiaries’ documents.  The practical consequence of my finding is that a subsidiary’s documents, the originals or copies of which the Company has in its possession to enable the Company to comply with its obligations arising under statute, delegated legislation or the Stock Exchange Rules, or which it obtained for commercial reasons and by reason of its managerial control over a subsidiary, constitute “records of the specified corporation”.  Conversely, a subsidiary’s documents that at the time of the making of an order for inspection are not in the lawful possession of the Company are not “records of the specified corporation”.

66.In the order that I will make, rather than the wording of the composite draft of the parties’ respective orders produced by the Plaintiff, which refers to “documents and records in the possession, custody or power of the 2^nd Defendant and the subsidiaries under the control of the 2^nd Defendant whose names are set out in Schedule 1 hereto …”, the opening sentence of §1 should be amended to “records of the 2^nd Defendant”.  Additionally, all the other references in §1 to records of “the Group” or “companies within the Group” should be removed and replaced with “records of the 2^nd Defendant”.  Finally, the all-encompassing definition of “documents” in the last two sentences of §1 should be struck out entirely.  Given the definition of “records” in section 2 of the Ordinance, as well as the conclusions I have reached regarding the scope and construction of “records of the specified corporation”, there is no need at this stage for a further definition of “documents”. 

67.I now turn to the contentious categories of documents.

68.Monthly management accounts (§1.2), ledgers and supporting documents of the Company (including instructions given by the 1^st Defendant) (§1.3).  Although the Company has agreed to the production of the Company’s journal entries and vouchers for inspection by the Plaintiff, it objects to producing ledgers and other supporting documents as part of any inspection order.  Such supporting documents, as I understand it, would include any instructions given by the 1^st Defendant or other directors of the Company relating to drawings, expenses, disbursements and loans paid or advanced by the Company.

69.Mr Manzoni’s objection in this respect is that the only relevant issues are the actions of the specified corporation (ie the Company) and it is therefore immaterial to any proper purpose under section 152FA which director gave instructions, or even that any director did give instructions.  As such, Mr Manzoni submits that the Plaintiff can only concern herself with the ultimate action taken by the Company, and this is identified by the journal entries and vouchers alone, not any of the monthly management accounts, ledgers or supporting documents.

70.I do not find this convincing.  As I have earlier concluded, I am satisfied that the Plaintiff seeks to inspect the Company’s records for a proper purpose, that being to investigate concerns regarding the misapplication or misuse of the Company’s assets.  Indeed, to that end the Company has already agreed in principle to produce for the Plaintiff’s inspection some documents containing detailed financial records of the Company, including bank statements, journal entries and vouchers.

71.In my view, if the Plaintiff is entitled to examine some of the Company’s detailed financial records, it logically follows, and is entirely appropriate, that she be entitled to the complete set of financial records of the Company in order to properly trace through and investigate the various transactions she suspects of wrongdoing, and this must necessarily include the monthly management accounts and the ledgers.  It seems to me that it is inconsistent for the Company to be willing to offer its journal entries and vouchers for inspection and yet object to the inspection of its ledgers, given that journal entries are normally, as I understand it, recorded in ledgers.  And monthly management accounts are merely documents which affirmatively summarise the information already contained in journal entries and vouchers.

72.I am mindful that allowing the Plaintiff access to such detailed financial information may create the risk of prejudice to the Company, since it appears that the Plaintiff is essentially seeking to cast a wide net and examine the Company’s financial history for any possible wrongful conduct on which to base legal proceedings against the Company.  But in the present application, that door has already been opened.  By tacitly agreeing to the provision of certain documents containing detailed financial information, it is difficult for the Company to credibly object to the further provision of documents containing arguably less detailed financial information.  I am therefore of the opinion that the Plaintiff is entitled to inspect the monthly management accounts and the ledgers in addition to the journal entries, vouchers and bank accounts that the Company has already agreed to provide her.

73.As for the supporting documents which include the 1^st Defendant’s instructions relating to payments and disbursements by the Company, I disagree with Mr Manzoni that such documents are “immaterial to any proper purpose under section 152FA”.  On the contrary, the Plaintiff has established that she seeks an inspection order on the grounds that, inter alia, she is concerned that the 1^st Defendant instructed the unauthorised employment of Ms Chen, as well as the misuse of the Company’s funds to pay her allowances, salary and decoration expenses.  The Plaintiff has further established legitimate concerns regarding the instructions of the 1^st Defendant in relation to unauthorised payment of bonuses, donations and commission to individuals and entities.  Such concerns are all relevant and germane to the Plaintiff’s status as a shareholder of the Company, and as such, she must be entitled to the supporting documents.

74.I note, however, that the Plaintiff seeks not only the documents relating to instructions given by the 1^st Defendant, but also of “any other director” of the Company.  This, I think, goes too far, at least at this stage.  There is as yet no suggestion or indeed, evidence, that any of the other directors of the Company gave instructions leading to unauthorised or otherwise wrongful conduct by the Company.  Accordingly, I direct that the reference to “other directors” of the Company in §1.3 be removed.

75.Payroll records of the Company (§1.5) and employer returns submitted by the Company to the Inland Revenue Department (§1.6).  An application made under section 152FA is expressly stated to be subject to the Personal Data (Privacy) Ordinance (Cap 486).  Section 152FE of the Ordinance provides:

“Nothing in sections 152FA, 152FB and 152FC, or any order made under any of those sections, shall authorize the collection, retention or use of personal data in contravention of the Personal Data (Privacy) Ordinance (Cap 486)”.

76.Section 4 of the Personal Data (Privacy) Ordinance states:

“A data user shall not do an act, or engage in a practice, that contravenes a data protection principle unless the act or practice, as the case may be, is required or permitted under this Ordinance”.

77.Principle 3 of the Data Protection Principles, which is set out in Schedule 1 of the Personal Data (Privacy) Ordinance, instructs that:

“Personal data shall not, without the prescribed consent of the data subject, be used for any purpose other than-

(a) the purpose for which the data were to be used at the time of the collection of the data; or

(b) a purpose directly related to the purpose referred to in paragraph (a)”.

78.Mr Manzoni submits that the payroll records of the Company and the employer returns submitted to the Inland Revenue Department (“IRD”) are “personal data” that, pursuant to section 152FE, is protected by the Personal Data (Privacy) Ordinance.  Such personal data may only be disclosed if, in accordance with Principle 3 of the Personal Data (Privacy) Ordinance, the purpose for which the data is sought to be used is the same as the purpose for which the data was collected.  Mr Manzoni contends that this is not the case in the present application and consequently, the transfer of data arising from the payroll records and employer returns must be refused.

79.I accept that at least some of the information in the documents referred to constitute “personal data” and are therefore protected under the Personal Data (Privacy) Ordinance.  One can readily see that information such as the addresses, phone numbers and contact information of individuals, as well as sensitive banking information and other private details, were collected for the purposes of ensuring that employees could be accurately identified and contacted and have their salaries deposited in bank accounts.  More to the point, the Plaintiff has not established any proper purpose for which she would be entitled to any such information, and thus she should be denied access to such personal data in any event.

80.But I have my doubts as to whether all of the information in the payroll records and employer returns constitute “personal data” for the purposes of protection under the Personal Data (Privacy) Ordinance.  Information such as the name of an employee and the amount of the employee’s salary seem to me not to violate Principle 3, since the purpose for which such data was collected was principally to allow for the proper administration of the Company so that the Company could keep a record of how much each employee was being paid and have accurate accounts kept.

81.This, I think, is essentially the same purpose as that which the Plaintiff now seeks to inspect the payroll records and employer returns.  As Mr Barlow submitted, such information is crucial for the Plaintiff to investigate her concern of whether Ms Chen was employed by the Company without authorisation and whether unauthorised payments were made to her during the course of her purported employment.  In other words, the Plaintiff seeks the payroll records and employer returns so as to verify the Company’s proper administration.

82.Admittedly, such distinctions are fine.  But fine lines have to be drawn.  It would be entirely artificial if the Company were entitled to withhold payroll records in all situations on the basis of protection of personal data under the Personal Data (Privacy) Ordinance, even where a member of a company was able to show that such information was entirely relevant to the protection of his economic interests as a shareholder.  Accordingly, in my view the payroll records and employer returns of the Company should be accessible to the Plaintiff for inspection purposes, with the following “personal data” blanked out: addresses, phone numbers, identity card numbers, email details and bank account details.

83.However, the Plaintiff should only be entitled to the payroll records and employer returns of Ms Chen.  Indeed, it is only in relation to Ms Chen’s employment and her receipt of salary, allowances and decoration expenses that the Plaintiff suspects was conducted wrongfully.  It is therefore fair that she is only entitled to inspect such documents as are necessary, relevant and germane to these purposes, as opposed to engaging in a full-scale fishing expedition: see Re Claremont Petroleum, supra.

84.Correspondence between the Company and its legal advisers, Sidley Austin (§1.10) and Conyers Dill & Pearman (§1.14).  Mr Manzoni contends that the correspondence and communications between the Company and its former solicitors, Messrs Sidley Austin, and between the Company and Messrs Conyers Dill & Pearman, are covered by legal professional privilege (including litigation privilege).  He invited the court to refuse the transfer of this information on the grounds that the Ordinance prevents inspection of such material.

85.Section 152FD provides:

“Nothing in sections 152FA and 152FB, or any order made under any of those sections, shall authorize a person to inspect any records containing information that is subject to legal professional privilege”.

86.I agree that as a matter of principle, the correspondence and communications between the Company and its legal advisers, insofar as they relate to the concerns and transactions that the Plaintiff has established as being a proper purpose for seeking such documents, are protected under section 152FD and therefore should not be subject to an order.

87.In any event, it seems unclear to me whether any of the legal correspondence or advice from either Messrs Sidley Austin or Messrs Conyers Dill & Pearman relate in the first place to the transactions and concerns which form the heart of this application.  As I understand it, the Plaintiff only sought the legal correspondence in order to rebut (or at least question) the validity of her removal as chairman and executive director of the Company on 10 June 2010. 

88.That, of course, falls short of the proper purpose requirement, since the reason why any of the documents were sought, as Mr Barlow advanced and as I accepted, was to address the Plaintiff’s concerns about misapplication of assets within the Company, not to question the validity of the Plaintiff’s removal as chairman and executive director of the Company.

89.There is therefore no reason, as regards the proper purpose requirement, why the Plaintiff should be entitled to the correspondence and communications between the Company and its legal advisers.  As it stands, such documents are in any event barred by the application of section 152FD.

90.Correspondence and communications between the Company and the Hong Kong Stock Exchange (§1.11).  Mr Barlow submitted that the correspondence between the Company and the Hong Kong Stock Exchange were required for a proper purpose under section 152FA, since the Stock Exchange “was eventually satisfied with [the Company’s] response to their enquiries prompted by [the Plaintiff’s] complaints”.  In other words, Mr Barlow contends that the Stock Exchange’s correspondence potentially informs her decision whether or not to bring a cause of action against the Company.

91.I am not convinced that such communications have the effect that Mr Barlow claims.  The Stock Exchange is concerned with compliance with the Listing Rules and related regulations.  It does not seem to me to be relevant that the Stock Exchange was satisfied with the Company’s response in relation to the complaint raised by the Plaintiff.  The fact that the Stock Exchange was “satisfied” with the Company’s response only serves to demonstrate that the Stock Exchange’s detailed and specific enquiries were adequately responded to by the Company.  In my view, inspecting such documents does not assist or inform the Plaintiff’s investigation as to whether or not a misapplication of assets has occurred within the Company.

92.I therefore refuse to grant the order for inspection in relation to the correspondence between the Company and the Hong Kong Stock Exchange.

93.Correspondence and communications between the Company and its accountants (§1.13) and reports prepared by the accountants (§1.14).  Mr Manzoni submitted that the Plaintiff should not be entitled to inspect the correspondence and communications between the Company and its accountants, as well as the reports prepared by the accountants, for the reason that the report documenting the conclusions reached by the accountants into the allegations made by the Plaintiff has already been disclosed.  As such, Mr Manzoni asserts, the documents leading to the conclusions are irrelevant and should not be disclosed to the Plaintiff.  Moreover, Mr Manzoni stresses that the Plaintiff should not be entitled to any more documents than is necessary to achieve what she seeks in the first place.  Otherwise, this would amount to fishing for evidence.

94.I can understand Mr Manzoni’s objection that an application under section 152FA should not be allowed to mutate into a wide-ranging discovery exercise.  But I do not think that this is the case as regards the Plaintiff’s request for communications between the Company and its accountants and the reports prepared by the accountants.  Unlike the correspondence between the Company and the Hong Kong Stock Exchange, the correspondence and preliminary reports by the Company’s accountants are directly relevant to the Plaintiff’s concerns: they detail the investigation undertaken by the accountants as to potential misapplication of assets by the Company, including the alleged misuse of rental revenue of two PRC properties owned by the Group, which the Plaintiff complains of.

95.Examining and inspecting the reports prepared by the accountants, and understanding how the accountants reached the conclusions stated in their final report, would plainly inform the Plaintiff of the strength of a potential claim against the Company for misuse of funds.  I am therefore of the view that the Plaintiff should be entitled to inspect these records.

96.Finally, I should mention that there is some disagreement as to whether the Plaintiff should be given “liberty to apply” for further inspection of documents of the Company (§6).  Mr Manzoni submits that the Plaintiff should not be given liberty to apply, since this is a “once and for all” application which needs to be finally dealt with.  The insistence of such a provision by the Plaintiff, he says, “demonstrates the desire to harass the [Company]”.

97.I do not agree.  An applicant will necessarily be restricted to the inspection of documents that he can demonstrate at the time of the application are sought for a proper purpose and in respect of which there is a sufficient “case for investigation” to warrant the court’s exercise of its discretion to grant an order.  An applicant may, following inspection of documents, demonstrate a justification to inspect more documents.  I see nothing objectionable in this.

Conclusion

98.In my view the Plaintiff should be given the opportunity to investigate the Company’s records with a view to deciding whether or not a claim for breach of duty should be pursued against the directors or to take such other steps as are lawful and appropriate to protect her interests as a shareholder such as putting matters before shareholders in general meeting or bringing regulatory infractions to the attention of the Stock Exchange or the Securities and Futures Commission.  For the foregoing reasons, the application should in my view be allowed in the following terms:

“1. The 2^nd Defendant, acting by a proper officer duly authorised by the Board of Directors of the 2^nd Defendant, do within 14 days of this Order serve on the Plaintiff an affirmation verifying a list of the records of the 2^nd Defendant for the period 1 January 2006 to the date of this Order which fall into the following categories:

1.1 contracts or agreements;

1.2 monthly management accounts of the 2^nd Defendant;

1.3 all journal entries, vouchers, ledgers and supporting documents (including any instructions given by the 1^st Defendant);

1.4 bank statements and other evidence showing receipts and payments in respect of all the bank accounts opened in the name of the 2^nd Defendant;

1.5 payroll records of Ms Betsy Chen;

1.6 employer returns submitted by or on behalf of the 2^nd Defendant to the Inland Revenue Department in respect of Ms Betsy Chen;

1.7 minutes of all meetings of the Board of Directors of the 2^nd Defendant and all committees established by the Board of Directors of the 2^nd Defendant;

1.8 minutes of all general meetings of the 2^nd Defendant;

1.9 correspondence and communications between the 2^nd Defendant and (a) Mazars CPA Limited and (b) Mazars Corporate Recovery and Forensic Services Limited; and

1.10 reports prepared by Mazars Corporate Recovery and Forensic Services Limited for the 2^nd Defendant;

insofar as they relate to the following concerns or transactions:

(a) the use of the sums of US$8 million and RMB35 million received by the 2^nd Defendant and its subsidiaries in 2007 from the Beef Island project and the Dan Shui properties in the PRC;

(b) the payment of decoration expenses for the residential property of Ms Betsy Chen and all payments made by the 2^nd Defendant to Ms Betsy Chen whether by way of salary, education allowance, credit card payment reimbursement or otherwise howsoever;

(c) the use of the rental revenue generated by the Group’s properties in Ping Wu, PRC from 2008 to 2009;

(d) the purported employment of Ms Betsy Chen by the 2^nd Defendant or any of its subsidiaries;

(e) the 2^nd Defendant’s payment of bonuses to staff and donations to the University of Chicago and donations procured to be made by the 1^st Defendant in the name of the 2^nd Defendant, including the Children donation account referred to in the 2nd affirmation of Ng Kit Ling; and

(f) the payment of commissions to Mr Robert Wong (collectively “Documents”).

2. The Plaintiff shall within 21 days of service of the List of Documents referred to in paragraph 1 above, serve on the 2^nd Defendant a notice stating the documents in the List of Documents which she would like to have copies of (“Notice”).

3. The 2^nd Defendant, upon payment of reasonable photocopying charges, shall provide copies of all the documents stated in the Notice within 7 days of service of the Notice.

4. The Plaintiff do have leave to disclose and provide copies of the Documents to the legal advisers and accountants duly appointed by her.

5. [Costs – see below];

6. There be liberty to apply.”

Costs

99.The Plaintiff has been successful in obtaining an order against the Company that goes materially further than was voluntered and in the normal way should have the costs of her application from 26 January 2011 against the Company.  The Plaintiff however, suggests that the 1^st Defendant should pay her costs because he is the puppet master who controls the Company and orchestrated its response to the application.  It does not seem to me that on the evidence before me I can realistically be expected to determine whether this is the case.  Therefore, I will make an order nisi that the Company pays the Plaintiff’s costs of her application against the Company from 26 January 2011.  So far as the 1^st Defendant is concerned, I order that his costs from the date of the originating summons are paid by the Plaintiff as in my view he was unnecessarily made a party.  I think it appropriate that no order is made in respect of the Plaintiff’s costs prior to 26 January 2011 as at that time the application was made on the basis, which was legitimate at the time, that she was a director, but ultimately that application was overtaken by events, namely, the Plaintiff’s removal as a director of the Company.  If any party wishes to challenge this order nisi they must write to the court within 7 clear days of the handing down of this judgment.

Mr Barrie Barlow, SC, instructed by Messrs Hogan Lovells, for the Plaintiff

Mr Victor Dawes and Mr Jose-Antonio Maurellet, instructed by Messrs Stevenson, Wong & Co, for the 1^st Defendant

Mr Charles Manzoni, instructed by Messrs Baker & McKenzie, for the 2^nd Defendant