CHAN PAI SHENG DANIEL AND OTHERS v. FULLERTON HEALTHCARE GROUP LTD AND ANOTHER

HCMP 2628/2017

[2018] HKCFI 1499

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 2628 OF 2017

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D E C I S I O N

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Introduction

1.  There is before me an originating summons taken out by three plaintiffs who are directors of the 1^st defendant, SC Fullerton Healthcare Group Limited (‘the company’).  The 2^nd defendant in the application is one Dr Francis Lee who was until mid-December 2017 also a director of the company.

2.  The originating summons as drafted sought:

‘The 1^st defendant shall provide and the 2^nd defendant shall procure the 1^st defendant to provide, to the plaintiffs within 7 days full and uninterrupted access to and allow the plaintiffs to inspect and take copies of certain documents.’

3.  As I have mentioned earlier, the 2^nd defendant was a director of the company, but he had resigned by 15 December 2017.

4.  The company was, essentially, a joint venture between two parties, namely, Fullerton Healthcare Group Private Limited (‘Fullerton’) and the Specialist Consortium Limited (‘SCL’).

5.  These parties entered into a joint venture agreement, dated 22 July 2013, which provided for arbitration in Singapore and for the substantive law to be that of the laws of the Republic of Singapore.  The purpose of the joint venture was for the purpose of investment and management of medical facilities and such other medical related businesses as may from time to time be agreed by the parties.

6.  On 7 August 2017, Rajah & Tan on behalf of Fullerton, wrote to a number of directors including the 2^nd defendant seeking disclosure of certain documents.

7.  By 13 September 2017, Peter Yuen & Associates, the Hong Kong solicitors acting for the plaintiff in these proceedings, again wrote to a number of directors, including the 2^nd defendant, seeking certain documents.  In particular, praying in aid section 374 of the Companies Ordinance, Cap 622, essentially, seeking the sort of documents which were sought in the present originating summons.

8.  A number of affirmations were filed, both in support and against the originating summons.  Combined, they go to almost 100 pages of affirmation or affidavit evidence.  As I observed during the hearing, the vast majority of that evidence is directed to disputes between the joint venture shareholders as opposed to matters which were particularly germane to the present application.

Applicable principles

9.  The applicable principles in these types of applications are well known.  They are set out in a number of authorities.  The law on a director’s right to access to accounting records in Hong Kong, both at common law and under the statute, previously under section 121 of the then Companies Ordinance, Cap 32, now section 374(1) of Cap 622, are well established and made very clear by a series of decisions of the Hong Kong Court of Appeal, including Re Boldwin Construction Company Limited [2001] 3 HKLRD 430, Re Alvarez & Marshal Asia [2009] 4 HKLRD 727, and Tsai Shao Chung v Asia Television Limited [2012] 4 HKLRD 52.

10.  The principles were summarised by Madam Justice Susan Kwan (as Her Ladyship then was) in Ng Yee Wah v Lam Chun Wah [2012] 4 HKLRD 40.

11.  In particular, for the purpose of today’s hearing, the following propositions were made clear in the decision of Ng Yee Wah, which was subsequently adopted in the other authorities:

‘(1) The right of a company director to inspect the company’s documents is well established at common law.

(2) The right of inspection flows from the director’s duties to the company and a director does not have to explain why the inspection is sought or demonstrate any particular ground or “need to know” as a basis. Thus, the inaction on the part of the director after grounds for suspicion concerning the company’s affairs have arisen is relevant; likewise, the intention of the director to discover misfeasance with the view to seeking relief, or that the desire to find evidence is motivated by vindictiveness.

(3) It is only where it can be proved that the director intends to abuse the confidence in relation to the company’s affairs and to injure the company in a material way that the director’s right of inspection can be interfered with, and such interference can only be effected in circumstances where a restriction on director’s right can be imposed because of misuse of confidential information leading to damage.

(4) In view of the proposition in (3), the exercise of a director’s right of inspection is, “generally speaking, not a matter of discretion with the Court”.

(5) The onus of establishing that the right of inspection will be exercised for improper purposes lies on the person who asserts it and “clear proof” is required to satisfy the Court “affirmatively” that the grant of the right of inspection would be detrimental to the interests of the company.’

12.  As observed by Mr Justice Godfrey Lam in Re Swisscelin Distribution Limited, unreported judgment dated 26 February 2016 (HCMP 2000/2015):

‘The law on a director’s right of access to the company’s documents is very clear, that the right is a strong one, and that the grounds for restricting that right and opposing an application of this kind are highly limited.’

13.  I note that in Hong Kong (as opposed to England and Wales), the grounds to oppose such an application are even more limited.

Analysis

14.  At the hearing, since the 2^nd defendant was no longer a director of the company and had no locus to oppose the application save as to costs, I made an order substantially in the form sought in the originating summons as against the company, but I obviously deleted the reference to the 2^nd defendant procuring the company to do anything.

15.  As I observed, in any event, and irrespective of 2^nd defendant’s resignation, it seems to me that as a matter of law, a single director would not be in a position to ‘procure’ a company to do anything because the power is vested in the board of directors collectively, rather than a single director of the company.  This, however, has no great practical significance for the purpose of this application. 

16.  The real issue, therefore, before me was largely a question of costs as between the director plaintiffs and the 2^nd defendant.

17.  Mr Howard Chan appearing for the plaintiffs submitted that this was a straightforward application and that the 2^nd defendant should have readily conceded and much costs would have been saved.

18.  Mr Louis Karon Fung appearing for Dr Lee submitted that Dr Lee was in an unfortunate situation.  He was, essentially, a medical doctor who found himself unwittingly caught between the crossfire of two groups of shareholders.  He described his position as, in effect, ‘nominal’, and that he had focused on his medical practice and did not, in fact, take part in the management of the company.

19.  He further submitted that one could see from his resignation in mid-December 2017, that he had not wanted to be bogged down and mired in potential conflicts of interest between various camps.  It was therefore in reality, part of a shareholders' dispute for which he had no real practical interest or involvement.  On that basis, he either sought costs or at the very least sought that no order for costs be made against him. 

20.  It seems to me that the plaintiffs being directors were entitled to mount the application as they were relying on a statutory right and there is no suggestion that that entitlement is in any way undermined by any of the recognised exceptions, for example, that the information sought is being sought for the purpose of undermining or hurting the company's interest in a material way.

21.  By mid-December, after Dr Lee had resigned, it seems to me that the obvious thing to have done would have been to write to the plaintiffs and suggest that they were neutral, save that there was an argument as to cost.

22.  All in all, it seems to me that the plaintiffs should get the costs of this application as against Dr Lee.

23.  In saying this, I appreciate that he may have felt he was in a difficult position and that to some extent this was caused by directions or persuasion by one of the two joint venture shareholders; in his case, SCL.

(Submission re quantum of costs)

24.  Both parties agreed that I could assess the matter on a gross sum basis and made submissions on the quantum and various items.  The amount sought for the application was HKD$650,900.  I have taken into account the fact that for work done after 1 January 2018, the allowable rate for a solicitor’s recovery on the party-and-party taxation had gone up. For example, for the highest rate, that has gone up from HKD$4,000 to HKD$5,800.

25.  I accept that, as pointed out by Mr Justice Harris in Re Matsue Limited, unreported judgment of 23 August 2012, at paragraph 7, that while the right of inspection flows from a director’s duties to the company and he does not have to justify why he wishes to inspect documents, nevertheless, a director is only entitled to seek the intervention of the court in support of this right if it is necessary:

‘He needs to satisfy the court that there are documents in existence that he has improperly been prevented from inspecting. If an applicant is unable to demonstrate that the documents he wishes to inspect probably exist or the court concludes that the application was unnecessary the director is not entitled to an order. In considering these issues the court will have regard to circumstances of the particular case before it. The right does not operate without regard to realities that affect the conduct of a particular company’s affairs.’

26.  This means that an applicant in such a situation has to give sufficient background to give the court a feel for the motivation behind the application, notwithstanding that it is almost as a matter of right.  Having said that, it seems to me that it is not necessary to go much beyond some background in order to allow the court to be able to do so and the applicant is, therefore, not required to go much beyond this.

27.  On the present case, as I have mentioned, most of the evidence filed, both on behalf of the plaintiffs and, indeed, on the part of the 2^nd defendant, go beyond and, indeed, much beyond the matters which needed to be dealt with and I think this is something which is relevant for the purpose of costs.

28.  Much work has gone into preparing the evidence in support and in opposition on the part of the plaintiffs.  In this case, over 60 hours has been spent both dealing with the affirmation in support and the evidence in opposition.  Given the criterion and the fact that these applications are meant to be dealt with in a straightforward way, it seems to me that it was not necessary and, therefore, that part of those costs would not be recoverable on a party-and-party taxation basis.

29.  Having regard to the applicable principles and bearing in mind the broad-brush approach, I conclude that on a party-and-party, the appropriate amount of taxed costs in this case is HKD$280,000.

30.  In cases where a respondent in such an application is not able to raise or, in fact, does not raise any of the exceptions referred to in the Ng Yee Wah case, these applications should be dealt with speedily and as early as possible to avoid delay and escalation of costs.

31.  I make a costs order for the sum I have mentioned above to be paid within 14 days from today.