Read the full judgment text of HCMP 1602/2010 on BabelCite. This Court of First Instance judgment was delivered on 30 August 2011 before Harris J.
Company law – shareholders' rights – inspection of company records – s.152FA Companies Ordinance – whether 'good faith' and 'proper purpose' are independent requirements – scope of 'proper purpose' – entitlement to inspect subsidiary documents – personal data protection – legal professional privilege – costs. The Plaintiff, a shareholder of the 2nd Defendant Company (a publicly listed company in Bermuda), sought production of Company documents under s.152FA of the Companies Ordinance. The Plaintiff and the 1st Defendant were formerly husband and wife who co-founded the Group in 1975. After their divorce, the Plaintiff raised concerns about the 1st Defendant's conduct of the Company's affairs, including alleged misapplication of Group assets, unauthorised payments to the 1st Defendant's alleged mistress (Ms Betsy Chen), misuse of rental income from PRC properties, and an unauthorised donation to the University of Chicago. The Plaintiff was removed as a director shortly before the hearing, requiring the application to proceed under s.152FA. The court held that the 'good faith' and 'proper purpose' requirements under s.152FA(3) are two separate and independent tests, rejecting the composite notion in Knightswood Nominees. Good faith is a subjective test requiring honesty and no ulterior motive, while proper purpose is an objective test requiring the purpose to be germane to the applicant's status as a shareholder. The court adopted a liberal interpretation of 'proper purpose', holding that protection of a member's economic interest in the company, including against potential mismanagement affecting share value, prima facie satisfies the requirement. The court rejected the narrower view that inspection orders should be confined to cases involving specific or personal rights that can only be protected by inspection. On the evidence, the Plaintiff's dominant purpose of investigating potential misapplication of Company assets was a proper purpose, notwithstanding any secondary improper purpose of harassment. A shareholder is not entitled under s.152FA to inspect documents of a company's subsidiaries that have not been passed to the parent company and which the parent cannot lawfully obtain; however, copies of subsidiary documents that have come into the Company's possession for statutory, regulatory, Stock Exchange, or commercial reasons do constitute Company records. Legal correspondence protected by legal professional privilege is excluded from inspection under s.152FD. Correspondence with the Stock Exchange was not relevant to the investigation. Payroll records and IRD returns for Ms Chen were ordered to be produced with personal data redacted pursuant to the Personal Data (Privacy) Ordinance. The court tailored the order of production to specified categories of documents (contracts, monthly management accounts, journal entries, vouchers, ledgers, supporting documents including 1st Defendant's instructions, bank statements, payroll and IRD records for Ms Chen, board and general meeting minutes, and correspondence and reports with the Company's accountants Mazars) related to the specific concerns identified. Costs: order nisi that the 2nd Defendant pays the Plaintiff's costs from 26 January 2011; Plaintiff to pay 1st Defendant's costs as he was unnecessarily joined; no order as to costs prior to 26 January 2011 relating to the abandoned director-based application.
Legal issues: Independence of 'good faith' and 'proper purpose' under s.152FA · Scope of 'proper purpose' under s.152FA · Entitlement to inspect subsidiary documents under s.152FA · Whether the Plaintiff demonstrated a proper purpose · Entitlement to specific categories of documents · Costs of the application
Outcome: Application allowed in part. The Plaintiff is entitled to inspect specified categories of Company records related to her identified concerns, with personal data redacted. The Plaintiff is not entitled to subsidiary documents that have not come into the Company's possession, legal correspondence protected by privilege, or correspondence with the Stock Exchange.
Cited by 2 cases · Cites 2 cases