[1999] SGCA 34

In the Court of Appeal of the Republic of Singapore

[1999] SGCA 34

CA 201/1998

Between

Wuu Khek Chiang George

… Appellant

And

ECRC Land Pte Ltd

… Respondent

grounds of decision

Companies — Accounts

This judgment is subject to final editorial corrections approved by the court and/or redaction pursuant to the publisher’s duty in compliance with the law, for publication in LawNet and/or the Singapore Law Reports.

Wuu Khek Chiang George v ECRC Land Pte Ltd

[1999] SGCA 34

CA 201/1998
Karthigesu JA; L P Thean JA; Yong Pung How CJ
07 May 1999

1 LP THEAN JA

3 Background facts

5 We begin with the background facts. Some of the material facts have been set out in our judgment in CA 156 of 1998 [reported at [1999] 2 SLR 166] and may be briefly stated here as follows. The appellant is the managing director and majority shareholder of a company, East Coast Recreation Centre Pte Ltd (`ECRC`). The company held a leasehold interest in two plots of State land situate at 1000 East Coast Parkway (`the land`) which had been developed into a recreation complex known as East Coast Recreation Centre (`the Centre`). The operation of the Centre was a success and the land became a valuable asset. The lease was for a term of 15 years and expired in March 1995; but prior to its expiry, the Land Office had indicated to ECRC that the lease would be renewed for a further term of 15 years. The lease was eventually renewed.

17 The appellant`s earlier requests for inspection

19 It was during the period while the consolidated suits were in progress that the appellant began requesting for access to the accounting and other financial records of the respondent. There were actually two sets of requests made by the appellant, one prior to the hearing of the suits and the other subsequent thereto.

On the face of it, it appears that your requests/queries are ambiguous and there does not seem to be any basis for the same.

As such, it would be inappropriate for us to accede to your requests.

As stated in my letter dated 24 November 1997, as a director and shareholder of [the respondent], I am entitled to the information requested ... . Please therefore furnish the information requested immediately.

23 The appellant`s subsequent requests

25 After the conclusion of the hearing of the consolidated suits in May 1998, the appellant renewed his request for production of the respondent`s accounting and other records for inspection. On 20 May 1998, the appellant attended at the respondent`s registered office and asked to inspect the respondents` minute books and accounts for the period 1995 to 1997. He was refused access and instead was handed a copy each of the respondent`s two letters dated 22 January 1998. On the same day, however, the appellant received a facsimile from the respondent in which it was stated that the respondent was agreeable to his request to inspect their minute books `as a gesture of goodwill`. On the next day, the respondent sent a further letter to the appellant in which it reiterated that it would accommodate his request for inspection `purely as a gesture of goodwill` and would allow him to do so on that basis, but that, as he believed that he was entitled to do so in any event, it had to `stand by the position taken in [its letters of 22 January 1998]`.

27 The decision below

29 The learned judge accepted that a director has the right, by virtue of the fact of his being a director, to have access to the company`s records, but there is a residual discretion vested in the court to deny such access where it is sought for an ulterior purpose inimical to the interests of the company. He referred to Conway & Ors v Petronius Clothing Co Ltd & Ors [1978] 1 All ER 185[1978] 1 WLR 72, State of South Australia v Barrett [1995] 13 ACLC 1369, Haw Par Brothers (Pte) Ltd v Dato Aw Kow [1972-1974] SLR 183 [1973] 2 MLJ 169 and Edman v Ross [1922] 22 SR (NSW) 351, and said at [para ] 16:

Despite dicta describing the right as `absolute`, there is a residual discretion in the court to deny access where it is sought for an ulterior purpose, that is to say, for a purpose inimicable to the interests of the company. The court will not, however, in the absence of clear proof, assume that a director is exercising his right other than for the benefit of the company.

There was clear evidence that [the appellant] had tried to destroy the very sub-stratum of the company`s existence by urging the Commissioner of Lands to revoke the consent to the lease assignment. Although the parties had later entered into a settlement agreement, the litigation about the $1.5m was still much alive. In the event, it was to proceed to a full-blown trial. Against this background, it seems to me that the company was justified in entertaining doubts that [the appellant] would use the information he sought, not in aid of discharging his duty as a director of the company, but for an ulterior purpose of his own, including a possible use of the information to the detriment of the company.

In the light of what [the appellant] had done, it [was] reasonable for the [respondents] to ask him for an assurance so as to dispel doubts about his intentions. Although it might hurt his pride, it was not something that was too onerous for him to give. In circumstances in which there is reasonable apprehension that the information gained might not be used for the legitimate purpose of enabling the applicant to discharge his duty as a director, it is not uncommon for such an undertaking to be offered, or imposed. See Re Geneva Finance Ltd [1992] 10 ACLC 668 and ASC v Woods & Johnson Developments Pty Ltd [1991] 9 ACLC 1,492. As the undertaking was not forthcoming, ... [the respondent was] quite justified in denying access.

34 Contentions of the appellant

36 Before us counsel for the appellant raised two main arguments. First, he submitted that there was no evidence that the appellant intended to misuse the information required to the detriment of the respondent. To begin with, while the appellant`s conduct in writing to the Commissioner of Lands might not have been commendable, it should nevertheless be read in the context of his dispute with Grande and SAFE in connection with the joint venture. More importantly, the appellant`s breach of fiduciary duty to the respondent, if there was such a breach, was covered by the terms of the settlement agreement, which clearly provided that all disputes between the parties were resolved, except the question of the $1.5m payment. It was not open to the respondent to rely on an issue which had already been settled. As for the payment of $1.5m, it had since been decided by this Court that the payment of $1.5m to ECRC was not a breach of the appellant`s fiduciary duty to the respondent.

39 The appeal

41 Before we turn to arguments of counsel, we should deal briefly with the nature and extent of the right of a director of a company to inspect the accounting and other records of the company. At common law, a director has the right of inspection of any documents such as the accounting and other records of the company and such right is a concomitant of the fiduciary duties of good faith, care, skill and diligence which the director owes to the company. As such, this right like other rights and powers of a director must be exercised for the benefit of the company. This right is recognised in s 199 of the Companies Act which, so far as relevant, provides:

(1) Every company and the directors and managers thereof shall cause to be kept such accounting and other records as will sufficiently explain the transactions and financial position of the company and enable true and fair profit and loss accounts and balance-sheets and any documents required to be attached thereto to be prepared from time to time, and shall cause those records to be kept in such manner as to enable them to be conveniently and properly audited. (2) ... (3) The records referred to in subsection (1) 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 . [Emphasis added.]

43 Dato Aw Kow v Haw Par Bros (Pte) Ltd [1972-1974] SLR 391 [1972] 2 MLJ 225 (HC), Haw Par Brothers v Dato Aw Kow [1972-1974] SLR 183 [1973] 2 MLJ 169 (CA) and Leong Sun Wing v Wah Hup Engineering Works Sdn Bhd (No 2) [1977] CSLR VII [1003]. In Haw Par Bros , the issue before this court was whether an order for inspection which had been made by a court under that section (then s 167(5)), continued in full force and effect after a director of the company had ceased to be a director. Wee Chong Jin CJ, delivering the judgment of the court, said at [1972-1974] SLR 183, 186; [1973] 2 MLJ 169, 170:

It seems to us clear that s 167(3) [now s 199(3)] gives an absolute right to inspect the accounting and other records required to be kept by a company and its directors under s 167(1) [s 199(1)] only to persons who are the then directors of the company. It is clear that s 167(3) cannot be successfully invoked by an ex-director. In our opinion where an ex-director wishes to inspect such accounting and other records of a company he cannot rely on s 167(3) and must rely on other grounds because it is clear law that an ex-director, as such, has no proprietary, managerial or other similar interest in the accounting and other records of a company.

44 Leong Sun Wing . The court adopted and approved the passage from the judgment of Wee Chong Jin CJ quoted above.

45 Welch & Anor v Britannia Industries Pte Ltd [1993] 1 SLR 673 . In that case, the plaintiffs who were directors of the defendant company made an application to court under s 199 of the Companies Act for an auditor to inspect the company`s accounting and other records of the company on their behalf. In allowing the application, Kan Ting Chiu JC (as he then was) said at p 680:

I am inclined to agree that the right of inspection under s 199(3) is an absolute right. However, by absolute, it does not mean that a director is entitled to inspect in all circumstances without restriction, but rather that the right flows from his office and he does not have to justify his desire to inspect. As Street CJ said in Edman v Ross, the director cannot be called upon to furnish his reasons before being allowed to exercise the right, and in the absence of clear proof to the contrary, the court must assume that he will exercise it for the benefit of his company.

46 Molomby v Whitehead and Australian Broadcasting Corp [1985] 63 ALR 282, 291, Beaumont J of the Federal Court of Australia said:

In my opinion, in declining access to Molomby [the director requesting for inspection], Whitehead [the managing director] fell into an error of law. The error consisted of a failure to recognize that, as a director of the Corporation, Molomby had a prima facie entitlement to access to the corporate material and that, in the absence of good cause to the contrary, and none existed here, Molomby should be permitted to inspect the documents nominated by him.

47 Edman v Ross [1922] 22 SR (NSW) 351, the plaintiff and the two defendants were shareholders and directors of a company. Disputes arose between them, and the plaintiffs took out an application for an interlocutory injunction restraining the defendants from, among other things, preventing him from having access to the books and accounts of the company. Street CJ of the Supreme Court of New South Wales held that the plaintiff as a director of the company was entitled to have access to the books and accounts of the company and the defendants were wrong in refusing him such access. The learned Chief Justice said at p 361:

The right to inspect documents and, if necessary, to take copies of them is essential to the proper performance of a director`s duties, and, though I am not prepared to say that the court might not restrain him in the exercise of this right if satisfied affirmatively that his intention was to abuse the confidence reposed in him and materially to injure the company, it is true nevertheless, that its exercise is, generally speaking, not a matter of discretion with the court and that he cannot be called upon to furnish his reasons before being allowed to exercise it. In the absence of clear proof to the contrary the court must assume that he will exercise it for the benefit of his company.

48 Conway & Ors v Petronius Clothing Co Ltd & Ors [1978] 1 All ER 185[1978] 1 WLR 72. The learned judge was there considering s 147 of the Companies Act 1948 of the United Kingdom, which is in pari matria with s 199 of our Companies Act. In particular, the material provision, namely sub-s (3), is in the following terms:

(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 ... [Emphasis is added.]

There appears to be remarkably little authority relating to the question whether directors of a company have a right to inspect the books of a company, either by virtue of s 147 or at common law or on some other grounds. There can be no doubt that s 147 places a statutory obligation on a company to make its books of account open to inspection by the directors and that any director of a company who fails to take proper steps to secure compliance by the company with this duty is liable to criminal sanctions in accordance with s 147(4). It does not, however, necessarily follow that s 147(3) confers any civil right of action whatever on a director against a company which refuses him inspection.

50 Edman v Ross , the learned judge came to the following conclusion at [1978] 1 All ER 185, 201; [1978] 1 WLR 72, 89-90:

I reach the following conclusions in relation to the nature of the right of a director to inspect the books of account of a company:

(1) The right exists but it is a right conferred by the common law and not by statute. Though the legislature in s 147 of the Companies Act 1948, and its predecessors, implicitly recognised the existence of this right at common law, it conferred no new right; the purpose of that section and its predecessors was to impose criminal sanctions in the event of proper books of account not being kept or not being made available for inspection or in the event of a breach of any of the other duties imposed by the section [see our s 199(6)]. (2) The right of a director to see his company`s books of account, which is exercisable both at and outside meetings, is conferred by the common law in order to enable the director to carry out his duties as a director: see the Burns case, 7 TLR 118 ... (3) The right of a director to inspect the company`s books of account must determine upon removal of the director from office. (4) The right not being a statutory right, the court is left with a residue of discretion as to whether or not to order inspection. However, in the case where there is no reason to suppose that the director is about to be removed from office, the discretion to withhold an order for inspection will be very sparingly exercised. Though a director will not in general be called upon to furnish his reasons before being allowed to exercise his right of inspection the court would in my judgment in such a case restrain him in the exercise of the right, if satisfied affirmatively that his intention was to abuse the confidence reposed in him as director and materially to injure the company. In my judgment, however, in the absence of clear proof to the contrary, the court would in such a case assume that he was exercising it for the benefit of his company ....

51 Berlei Hestia (NZ) Ltd v Fernyhough [1980] 2 NZLR 150. In that case, an Australian company held 40% of the shares in a New Zealand company (`the Company`) and was represented on the board by three directors, and the other directors also three in number represented certain interests in New Zealand (`the New Zealand directors`). The Company began exporting its products to Australia and competed with the Australian company in Australia. Differences arose between the Australian company and its nominated directors on the one hand and the Company and the New Zealand directors on the other. The New Zealand directors assumed control of the affairs of the Company to the exclusion of the Australian directors. The Australian company and the Australian directors took action against the Company and the New Zealand directors and applied for interlocutory reliefs. One of the reliefs sought was an injunction to restrain the New Zealand directors from refusing the Australian directors access to the records and accounts of the Company. Mahon J granted the injunction holding that there was no evidence that the Australian directors would use the corporate information for the benefit of the competitors. There the statutory provision involved was s 151 of the New Zealand Companies Act 1955, which is in all material respects similar to s 147 of the United Kingdom Companies Act and s 199 of our Act. The material provision is s 151(2) which is as follows:

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 any director. [Emphasis is added]

Whilst I agree with Slade J that there was not in the UK statute, and not in the relevant 1976 amendment thereto, any positive declaration that a director has the right of inspection of company records, in contrast with a shareholder`s right to inspect the register of members, which is specifically provided for, yet it seems difficult to say, reading the New Zealand s 151(2), that no statutory right of inspection is thereby created. I have quoted the subsection already. Its terms are substantially identical with s 147(3) of the UK Act as it then stood. When read with the other provisions imposing penal sanctions upon directors in respect of false accounts, the subsection seems clearly to create a statutory right of inspection. This was the opinion expressed by DD Prentice in (1978) 94 LQR 184 in a case note on Conway v Petronius, and I agree with that opinion.

53 Welch v Britannia , Kan Ting Chiu JC held (at p 681) that there is nothing in s 199 or elsewhere in the Companies Act which suggests that the right at common law as reflected in Edman v Ross has been modified. We respectfully agree.

54 Berlei also disagreed with Slade J that there was a residual discretion in the court to refuse inspection. He said at p 163:

In the course of his judgment Slade J relied to a considerable extent, with reference to the extent of the director`s rights, upon the quotations just made from the two reported cases referred to, but I venture to suggest, with great respect, that neither of the cases in fact justifies the conclusion of Slade J that there is a discretion as to whether or not a court will permit a director to have access to corporate records and accounts. The correct construction of the authorities relied upon by Slade J seems to me to be that the right of inspection is unqualified, but that where it is proved that a director is acting or is about to act in breach of his fiduciary duty to the company and intends to aid that process by inspecting the books, then his right to inspection disappears.

56 Edman v Ross (supra) at p 361, Molomby v Whitehead (supra) at p 292, Deluge Holdings Pty Ltd & Anor v Bowlay & Ors [1991] 9 ACLC 1,486, 1,488 and Re Geneva Finance Ltd (Receiver and Manager Appointed) [1992] 10 ACLC 668, 675 and 676.

57 Burden of proof

59 The onus of establishing that the right is being, or will be, exercised for an improper purpose lies on the person who asserts it: per Isaacs J in Australian Metropolitan Life Assurance Co Ltd v Ure & Ors [1923] 33 CLR 199, 219. There is no burden on a director to show any particular reason for his request for inspection - this will ordinarily be assumed: see Molomby v Whitehead (supra) at p 293. It is for those who oppose the director`s right to inspect to show `clear proof` and to satisfy the court `affirmatively` that the grant of the right of inspection would be for the purpose which would be detrimental to the interests of the company. There must be a `real ground` that the right would be abused and that substantial harm would be caused to the company thereby.

63 Conclusion

65 For the foregoing reasons, we allowed the appeal and ordered the respondent to produce all its accounting and other records for the inspection of the appellant.

Karthigesu JA
L P Thean JA
Yong Pung How CJ

Stephen C Soh (Bernard, Rada & Partners) for the appellant
Respondents unrepresented