Law Wai Duen v. Boldwin Construction Company Ltd & Another
Read the full judgment text of CACV 1835/2001 on BabelCite. This Court of Appeal judgment was delivered on 9 November 2001 before Rogers VP, Le Pichon JA and Sakhrani J.
Company law – director's right of inspection of company accounting records – inspection of computer records – forensic imaging – amendment of court order – liberty to apply – Companies Ordinance, Chapter 32 of the Laws of Hong Kong – right of inspection of computerised accounts – plaintiff a director of Boldwin Construction Company Limited and B.F. Construction Company Limited – orders originally drawn in conventional phraseology for written books of account – accounting records kept on computer – forensic imaging process required to preserve computer records and avoid alteration – application under inherent jurisdiction to amend order on 19 September 2001 – whether court had power to amend – slip rule under Ord. 20 r. 11 not the basis of amendment – liberty to apply implied in court orders (Fritz v Hobson (1880) 14 Ch. D. 542) – whether objections to third party computer software and other records on same hard drive had merit – resolved by confidentiality safeguards – whether points sought to be argued were of great general or public importance warranting leave to appeal to the Court of Final Appeal – major grounds turned on director's right of inspection of company documents – whether interference with inspection required likelihood of damage from misuse of confidential information – court found proposed arguments had no relevance to the result of the plaintiff's applications – no evidence of any misuse of information – competent director duty bound to investigate heavily qualified Boldwin 1998 and 1999 accounts, unexplained large deposits and debits, 2nd defendant's personal use of Boldwin's accounts for stock investments, alleged misrepresentation to bankers regarding $14 million fixed deposits, and substantial discrepancies in B.F. Construction accounts with profits dropping from over $115 million to $15.5 million and to a loss of $37,794 in 2000 – inferences of vindicteness were inferences of fact from documentary evidence – Court of Appeal in as good a position as Court of First Instance – animosity alone could not debar application – leave to appeal to Court of Final Appeal dismissed.
Legal issues: Director's right of inspection of company accounting records
Outcome: Leave to appeal to the Court of Final Appeal dismissed in both CACV 1835/2001 and CACV 1836/2001.
Cited by 8 cases
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CACV001835A/2001 CACV 1835/2001 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF APPEAL CIVIL APPEAL NO. 1835 OF 2001 (ON APPEAL FROM HCMP NO. 702 OF 2001) _________________________
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_________________________ CACV 1836/2001 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF APPEAL CIVIL APPEAL NO. 1836 OF 2001 (ON APPEAL FROM HCMP NO. 703 OF 2001) _________________________
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_________________________ Coram: Hon Rogers VP, Le Pichon JA and Sakhrani J in Court Date of Hearing: 9 November 2001 Date of Decision: 9 November 2001 Date of Handing Down of Reasons for Decision: 5 December 2001 _________________________ REASONS FOR DECISION _________________________ Hon Rogers VP: 1.This was an application on behalf of the 2nd defendant in both appeals and the 3rd defendant in CACV 1836 of 2001 for leave to appeal the judgment and order of 7 September 2001 to the Court of Final Appeal. The basis of the application was that there were a number of matters of great general or public importance which required determination. At the hearing, these applications were refused. The court indicated that it would give its reasons in writing which it now does. 2.The background to the case can be gleaned from the reasons for judgment dated 18 September 2001 and the judgment of Chu J of 27 July 2001. The plaintiff in both actions was a director of the relevant companies. She had sought inspection of the books of accounts and related documents of those companies. Although the application was framed in terms of both the plaintiff and her agents or representatives having access, it was clear on the application that it would be accountants instructed by the plaintiff as her agents who would primarily be making use of that access. The order was drawn up in what might be termed the conventional phraseology. That phraseology was appropriate to books of account kept in the written, conventional form. When the plaintiff's accountants first attempted inspection it was discovered that the accounting records of the companies were kept on computer. 3.Evidence was filed to show that in order for full inspection of the accounting records it was necessary that what was termed the forensic imaging process should be used to copy the computer records. This would avoid any possibility of alteration or changes because of operation of the computer. Application was therefore made to court on 19 September 2001 under the court's inherent jurisdiction. Although the orders did not contain the words liberty to apply, as Fry J pointed out in Fritz v Hobson (1880) 14 Ch. D. 542 liberty to apply is implied in court orders without it expressly being mentioned. The learned judge used the words "in gremio" to express that. The application was for the purposes of working out the order. The court had intended that there should be full inspection of the accounting records. In terms of written documents that would mean inspecting the original written document. That would enable the person inspecting to see whether there had been changes and alterations or corrections and perhaps also to see how the books were kept. Translating those notions to computer form relevant to the present day entails, as explained in the first affidavit of Russell Lindsay Wallace filed on 15 September 2001 in CACV 1836 of 2001, preservation of the computer record as closely as possible. 4.Objection had been taken on behalf of the 2nd defendant on the basis that there was a possible difficulty with regard to use of third party computer software. That objection did not appear to have a great deal of substance and was in any event resolved. Further objection was taken that other records were kept on the same computer hard drive as the accounting records of the two relevant companies. As regards that, inspection was given only for the accounting records of companies. Anybody who obtained any other information, whether relating to other companies or personal information of other parties, would be bound by the rules as to confidential information and would not be able to make any use of that information at all nor would they be able to pass on any such information to any other party. In view of the fact that the inspection and assessment of the accounting records was to be carried out by accountants with a view to seeing whether there had been any misfeasance or errors in the accounts of the two relevant companies, again the objection was of no merit. 5.On the application for leave to appeal to the Court of Final Appeal, both the 2nd defendant and the 3rd defendant sought initially to object on the basis that there had been no power in the court to make such amendment. At the hearing, counsel for the 3rd defendant sensibly abandoned such an argument in view of the fact that the 3rd defendant's solicitors had written indicating that they had had no objection to the amendment of the order on 19 September 2001. The objection taken on behalf of the 2nd defendant was that there was no power in the court to amend the order under Ord. 20 r. 11, i.e. the slip rule. As was pointed out to counsel at the hearing, who appeared in the case for the first time, the basis of the amendment of the order was not under the slip rule. The 2nd defendant did not ask for any further safeguards to be written into the order either on 19 September or on the application for leave to appeal to the Court of Final Appeal. 6.The major grounds upon which both defendants sought leave to appeal to the Court of Final Appeal turned upon the director's right to inspect company documents. Specifically, Mr Aiken SC, on the making of this application, drew attention to paragraph 15 of the reasons for judgment dated 18 September 2001. Whilst it was not apparently disputed on behalf of the defendants that, generally, directors should have access to the accounting records of a company, it was said that the court had gone too far by saying that it was only where damage would result from misuse of confidential information that the director's right of inspection could be interfered with. 7.In the circumstances of this case the points sought to be argued would have had no relevance to the result of the plaintiff's applications. There was no evidence to suggest that there would be any misuse of information obtained on the inspection. Hence, it was idle to argue that misuse of information even without likelihood of damage would suffice to prevent a director having inspection of company accounting documents. The inspection was to be carried out by accountants for the purposes of reviewing the accounts of the companies. The plaintiff's evidence on the applications showed and proved need for proper scrutiny of the accounting records:
8.In those circumstances, it was plain that any competent director performing his duties as a director would be duty bound to make proper investigation of the accounts in respect of both companies. The plaintiff had duties as a director. In respect of both companies the interest in the companies and in the profits which they generated were not confined to the plaintiff and the 2nd defendant. In the absence of any indication that information relating to the companies which would be gleaned on the inspection would be used for purposes other than correcting anything which needed correction as a result of error, misfeasance or malfeasance, any argument that it was not necessary for the defendants to show that damage would be occasioned to the relevant company in order for them to justify refusal of inspection, would be irrelevant to the result of the application for inspection. 9.Insofar as the questions said to arise turned upon the view this Court took as to the allegations of vindictiveness on the part of the plaintiff, it needs only be said that these were inferences of fact drawn from documentary evidence. This Court was in as good a position as the Court of First Instance to assess the matter. Even if the animosity between the plaintiff and the 2nd defendant had led to the plaintiff wishing to expose the 2nd defendants misfeasance or malfeasance and to bring him to book as a result, that could not debar the application unless it could be shown that the plaintiff was either not about to use the information for those purposes or was to use it in some other way contrary to the interests of the company. Hon Le Pichon JA: 10.I agree. Hon Sakhrani J: 11.I agree.
Representation: Mr Winston Poon, SC and Ms Linda Chan, instructed by Messrs Baker & McKenzie, for the Plaintiffs/Respondents in both appeals Mr Nigel Aiken, SC and Mr Stewart K M Wong, instructed by Messrs Ng & Partners, for the 2nd Defendant/1st Applicant in both appeals Mr Kenny C P Lin, instructed by Messrs King & Co., for the 3rd Defendant/2nd Applicant in CACV 1836/2001 Leave to appeal to Court of Final Appeal dismissed: see FAMV28/2001 |
Other judgments that cite this case
Further hearings and rulings under CACV 1835/2001