Company law — directors — right to inspect documents — application by director whose removal inevitable — whether application made for improper purpose — inference to be drawn from inevitable removal as to purpose of inspection
P, K, M and T were four directors of six companies (D1–6). P was also the Chief Investment Officer (“CIO”) of D1. K was the sole owner of another company (“CMK”), which owned 44 percent of the shares in D1, which in turn wholly owned D2–6. On 23 October 2018, P’s solicitors wrote to D1–2 alleging misconduct by K and M, including a proposal by K to use part of the proceeds of a share allotment by D1 to repay a loan allegedly owed by K and M to a company owned by them and demanded that they or CMK buy out his shares in D1 and, absent a reply, threatened court proceedings. On 25 October 2018, P was summarily dismissed as D1’s CIO. A general meeting of D1 to consider the removal of P as a director was fixed for 27 November 2018. On 30 October 2018, Ds informed the Court that they were willing to provide copies of their documents requested by P within 42 days; and P applied for inspection and the taking of copies of Ds’ documents.
Held, dismissing P’s application, that:
1) The grounds for refusing inspection by directors was not limited to an intended abuse or breach of confidence leading to injury or damage to the company. Any improper purpose, properly established by the company, constituted a ground for refusal. An attempt to achieve an advantage in proceedings, anticipated or existing, between various shareholders of the company concerned, if proven, would be an improper purpose, as this would not be for the purpose of discharging one’s duties as a director (Oxford Legal Group Ltd v Sibbasbridge Services Plc  Bus LR 1244, Ng Yee Wah v Lam Chun Wah  4 HKLRD 40, Tsai Shao Chung v Asia Television Ltd  4 HKLRD 52, Re Tanyuen Investments Ltd (HCCW 375/2008,  HKEC 1773) applied). (See paras. 24–26.)
2) The fact that a director seeking inspection was likely or inevitably to be removed soon was not per se a reason to refuse inspection. Inevitable removal might in itself be a reason to refuse interlocutory relief as this might be an important factor in the discretionary consideration of the balance of convenience. But where, as here, inspection as final relief was being sought, the matter was not one of discretion. The question was what inference could be drawn from the likely or inevitable removal regarding the purpose of the inspection in all the circumstances. The burden was on the company concerned to establish an improper purpose affirmatively with clear proof (Conway v Petronius Clothing Co Ltd  1 WLR 72 applied). (See para. 27.)
3) Here, on the facts, it was a virtual certainty that P would be removed as a director of each of Ds on 27 November 2018 or soon after. (See paras. 29–34.)
4) On 30 October 2018, P and his advisors must have known that his removal was inevitable, given that K’s camp controlled Ds, yet he persisted in his application. The clear inference to be drawn on the evidence was that P was not making, and continuing with, this application for inspection for the purpose of enabling him to discharge his duties as a director of Ds. Rather, P’s application was made for an improper purpose, namely to obtain information which might assist him in likely litigation against K and M. Accordingly, inspection should be refused (Oxford Legal Group Ltd v Sibbasbridge Services Plc Bus LR 1244 applied). (See paras. 35, 40.)
This was an application by the plaintiff-director of each of the first to sixth defendant-companies for inspection and copies and various of the defendants’ documents. The facts are set out in the judgment.