XCHRX LAW WAI DUEN v. BOLDWIN CONSTRUCTION CO. LTD. AND ANOTHER

HCMP702/2001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO.702 OF 2001

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J U D G M E N T

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1. In both actions, the plaintiffs apply by way of originating summons for relief pursuant to section 121 of the Companies Ordinance, Cap.32. The respective 1st defendant, being the companies involved and sued as nominal defendants, have entered no appearance in the proceedings. The 2nd defendant in both actions opposes the applications. The 3rd defendant in HCMP703/2001 neither consents nor objects to the applications. He contends that he ought not to have been joined as a party.

2. By summonses issued on 19 June 2001, the 2nd defendant in both actions applied to stay the proceedings pending the determination of the beneficial ownership of the shares of the two companies in another High Court Action No.2623/2001. The applications for stay are opposed by the plaintiffs. The 3rd defendant in HCMP703/2001 takes a neutral stance on the stay application.

3. The two companies involved in the two actions are related companies. The arguments on both originating summonses are essentially the same. The two actions were therefore heard together. Further since the arguments on the section 121 applications overlap with those on the stay applications, the two matters were heard together.

BACKGROUND

4. The plaintiff in HCMP702/2001, who is also the 1st plaintiff in HCMP703/2001 ("the Wife") is the wife of the 2nd defendant in both actions ("the Husband"). The 2nd plaintiff in HCMP703/2001 is their daughter ("the Daughter").

5. In 1976, Boldwin Construction Co. Ltd ("Boldwin"), the 1st defendant in HCMP702/2001, was incorporated with the Husband and the Wife each holding one share. In 1978, an additional 1,998 shares were issued, of which 1,198 shares were registered in the Husband's name and the remaining 800 shares were held by the Wife's sister ("LHS") and brother-in-law ("CWL"). In 1985, the 1,199 shares held in the Husband's name were transferred to a company called Junestar Investment Corporation ("Junestar"). The 800 shares held by LHS and CWL were transferred to a company called Rocky Limited ("Rocky"). Currently, the board of directors comprise the Husband, the Wife, LHS, CWL and two employees of Boldwin.

6. Boldwin's main business has been to act as main contractor of construction projects, most of which were developed by the Cheung Kong group of companies ("Cheung Kong'). Boldwin has been operating successfully and its accumulated profits between 1993 and 1996 is in excess of $180 million. Dividends had been declared but not paid. The unpaid dividends was treated as shareholders loans. Since mid-1999, Boldwin has not been in active trading.

7. B.F. Construction Co. Ltd. ("B.F."), the 1st defendant in HCMP703/2001 was incorporated in September 1997. 40% of its shares are registered in a BVI Company called Myriad Gold Corporation ("MGC") and the remaining 60% are held by another company called Maintain Profits Limited ("MPL"). The Husband and Wife each held one share in MGC and also MPL. The Husband, the Wife, the Daughter and the 3rd defendant in HCMP703/2001 ("Mr Yip") constitute the board of directors. Since incorporation, B.F. has been acting as a main contractor for construction projects. Thus far, all the projects were developed by Cheung Kong.

8. The working capital of B.F. derives from a $3.5 billion revolving loan facility provided, as to 30%, by a Bomina Limited ("Bomina") and, as to 70%, by a Presidential Profits Limited ("Presidential). Bomina is a subsidiary company within Cheung Kong whereas Presidential is indirectly owned by the Husband and Wife. In consideration of the loan facility, B.F. is to pay a premium to Bomina and Presidential equivalent to 30% and 70% respectively of the retained profits of B.F. This arrangement was reflected in a loan agreement dated 3 March 1999 ("the Loan Agreement"). Clause 12.01(m) of the Loan Agreement provides that it shall be an event of default if the Husband ceases to directly or indirectly hold the entire issued share capital of B.F.

9. Before August 1999, the bank accounts of Boldwin and B.F. were operated by the joint signatures of either the Husband or the Wife together with that of either the Daughter or a Miss Sally Choi, an employee of the companies. Since August 1999, the Daughter and Miss Choi ceased to be the authorized signatories for both companies. In the case of Boldwin, the accounts have since been operated by the joint signatures of the Husband and Wife or by the joint signatures of either of them together with that of either of LHS or CWL. As for B.F., the joint signatures of the Husband and Wife are required.

EVENTS LEADING TO THE APPLICATIONS TO INSPECT

10. The documents of which inspection is sought have been kept at the office premises of Boldwin and B.F. respectively. The Wife's and the Daughter's case is that the documents are, in the case of Boldwin, under the custody and control of the Husband, and, in the case of B.F., under the custody and control of the Husband and Mr Yip. They say that their present applications are prompted by certain matters that have come to their attention since 1999.

(1) Boldwin

11. The Wife's case is that notwithstanding that Boldwin had been trading profitably, the draft audited account for the year ending 31 March 1998 shows an operating loss. The auditor, Deloitte Touche Tohmatsu ("DTT"), also expressed a qualified opinion on the accounting treatment in respect of the construction work undertaken by Boldwin and which was still in progress. The Wife says that she nevertheless signed the 1998 account upon explanations given by the Husband. Subsequently in mid-1999, she, however, discovered that large sums of cash payments were paid in and out of the bank accounts of Boldwin, to which she was unable to obtain an explanation from the Husband. The draft 1999 audited account, which she received in December 1999, was heavily qualified by DTT. She therefore refused to sign it. As a result of all these, the Wife, through her solicitors, wrote on 23 January 2001 to the Husband demanding to examine the books and accounts of Boldwin for the period from April 1995 to date with the assistance of qualified accountants. The examination was said to be for the purpose of enabling the Wife to properly discharge her duties as director. The demand was not responded to. So on 7 February 2001, the Wife commenced HCMP702/2001 against the Husband.

(2) B.F.

12. According to the Wife, the events leading to the application are these. In November 1999, she received the reports and financial statements of B.F. for the period since its incorporation up to 31 March 1999. She discovered that the profit before tax was only some $15 million as compared to $115 million recorded in an earlier management account for the period up to 31 January 1999. There was no explanation given for the reduction in profits despite demands, hence the Wife and the Daughter refused to approve or to sign the 1999 accounts. In December 2000, the Wife was provided with a draft account for the year ending 31 March 2000. The profits recorded therein was less than those in previous accounts.

13. On 27 November 2000, a board meeting was convened and attended only by the Husband and Mr Yip. The Wife and Daughter had previously objected to the Meeting and did not attend it. The minutes of the meeting recorded a resolution removing the Wife as one of the joint signatories of B.F.'s bank accounts. The validity of the Meeting and of the resolution is challenged by the Wife and the Daughter. For the purpose of these applications, it is sufficient to note that the Husband and Mr Yip have subsequently agreed not to act on the resolution. In the meantime since October 2000, the Wife has been refusing to co-sign cheques of B.F. on the basis that the necessary particulars and documentation had not been provided to her.

14. It was against such background that the Wife and Daughter through their solicitors wrote on 18 December 2000 to B.F., for the attention of the Husband and Mr Yip, to demand examination of B.F.'s books and accounts. In response, the Husband by letter dated 22 December 2000 asserted that he was the beneficial owner of all the shares in B.F. He also proposed to hold a meeting with the Wife and Daughter to deal with their concerns. Eventually on 29 January 2001, a board meeting was held and attended by all the directors together with the respective solicitors for the Husband and the Wife. During the meeting, the Husband indicated that he was prepared to arrange for the Wife to inspect the company books and accounts with the detailed arrangement to be advised. No inspection, however, took place. So on 7 February 2001, HCMP703/2001 was instituted alongside with HCMP702/2001.

REASONS FOR OPPOSING THE APPLICATIONS TO INSPECT

15. The Husband denies there is any irregularity in the accounts and affairs of Boldwin and B.F. In respect of Boldwin, his explanation is that the qualified opinion of DTT on the 1988 accounts arose purely from a disagreement about the accounting treatment adopted by Boldwin's former auditor. DTT took the view that the statement of Standard Accounting Policies No.3 introduced in 1998 should be followed, in which case, Boldwin's loss before taxation would have been reversed by a profit. As to cash payments in and out of Boldwin's accounts, the Husband says they are his investment in stocks and that the Wife has along been made aware of these activities carried out though the company account(s).

16. In the case of B.F., the Husband agrees that there have been adjustments to the profits in the accounts, but they are caused principally by the provision of liquidated damages for the ongoing building contracts. The Husband also explains that the resolution passed on 27 November 2000 was an attempt to get round the difficulties caused by the Wife's persistent refusals or delays in counter-signing cheques.

17. More importantly, the Husband says that B.F. is solely owned by him beneficially. Similarly, the shares in Boldwin registered in the name of Junestar are held beneficially on his behalf. The Husband also says that the Wife has never taken any active part in the management and affairs of the two companies. According to him, the wife's present applications to inspect company documents is part of her moves to take revenge on him and to "squeeze money out of" him, which are actuated by her suspicion of his infidelity.

18. The Husband's case is that after a confrontation during Lunar New Year in 1999, the Wife began to carry out a series of acts to undermine his interest while advancing hers in the two companies. There were, first of all, changes in the bank mandates. Secondly, she caused the bearer shares in Boldwin held by Junestar to be registered under her name. Thirdly, in May 1999 she caused two sums totalling approximately $80 million to be paid out to Junestar as payments of part of the unpaid declared dividends. Fourthly, the Wife and the Daughter caused the authorized share capital of B.F. to be increased in March 1999 from $10,000 to $1 million. The Wife also persistently refused to counter-sign cheques for payments to be made in the ordinary course of business of B.F. The Husband therefore says that these proceedings were made with an ulterior motive and not for the purpose of discharging the Wife's and the Daughter's duties as directors.

19. In the meantime, the Husband has commenced divorce proceedings against the Wife. The Husband has also instituted HCA2623/2001 claiming declarations to the effect that he is the beneficial owner of the shares in Boldwin registered in the name of Junestar and also of the entire issued share capital of B.F.

THE APPLICATIONS FOR STAY

20. The Husband says that the determination of the beneficial ownership of the shares in Boldwin held by Junestar and of the shares in B.F. is crucial and will finally decide on the Wife's and Daughter's entitlement to inspect. It is argued that if the issue of beneficial ownership is determined in the Husband's favour, then the Wife can only act as directed by the Husband and not contrary to his wishes. The Husband, at the same time, would be entitled to mandate the Wife's votes at the general meetings and also to remove her and the Daughter as directors. Considering this and the ulterior motive held by the Wife and Daughter, then the court is unlikely to grant the relief sought by the Wife and Daughter. The issue of beneficial ownership is therefore of crucial importance to the outcome of these applications, and should be resolved before dealing with these applications. As the issue is heavily contested, it is more appropriate and convenient for it to be resolved by way of a trial in the writ action. The Husband, therefore, applies for stay of these proceedings pending the conclusion of HCA2623/2001. Alternatively, leading counsel for the Husband submits that these proceedings should be continued as if begun by writ together with consequential directions on the further conduct of the actions.

21. The Wife and Daughter oppose the applications for stay on the ground that the issue of beneficial ownership is irrelevant to their entitlement to inspect the documents of the two companies. Their argument is that their right of inspection does not stamp from ownership of the company but is conferred upon them qua their capacity as directors. It is an absolute right so that they are not obliged to give reason or justify the request to inspect, and it is for the opposing party to justify why they should be denied the right.

22. In deciding whether the issue of beneficial ownership is relevant to the right to inspect, it is necessary to examine the law relating to the nature and ambit of the director's power to inspect books of account of company.

(1) The law on director's right of inspection

23. The starting point is section 121 of the Companies Ordinance, the material part of which provides as follows :

" (1) Every company shall cause to be kept proper books of account with respect to -

(a) all sums of money received and expended by the company and the matters in respect of which the receipt and expenditure takes place;

(b) all sales and purchases of goods by the company;

(c) the assets and liabilities of the company.

(2) ....

(3) 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:

..."

24. The common law also recognizes the director's right to inspect as being essential to the proper performance of his duties. In Edman v. Ross (1922) 22 SR (NSW) 351, the Supreme Court of New South Wales held that the existence of such a right is clear. Street CJ in Eq. said (at p.360) :

"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."

25. Edman v. Ross was considered in Conway v. Petronius Clothing Co. Ltd [1977] 1 WLR 72. In that case, the plaintiff directors, being frustrated in their attempts to inspect the books of account and other records of the companies in question, instituted proceedings against the companies and directors seeking an order for the production of the documents and permission to take copies thereof and other relief. One of the main issues before the court is whether section 147 of the Companies Act 1948, which is equivalent to our section 121, confers a civil right of action and, in turn, the nature of a director's right to inspect the books of account of a company. In his judgment, Slade J traced the history of the law relating to the director's right to inspect the books of a company starting with the 1890 case of Burn v. London and South Wales Coal Co. and Risca Investment Co. (1890) 7 TLR 118. It shows that the director's right of inspection was established under the common law before it was embodied in the statute. Slade J also referred to several other authorities, including Edman v. Ross and the passage of Street CJ in Eq. cited above. Having considered these authorities and noting that section 147 contains no provision empowering the court to order inspection, Slade J concluded that section 147 does not itself confer upon directors a statutory right to compel the company or any directors of the company to make its books of account available for inspection. The director's right of inspection, in his judgment, is conferred by common law, and section 147 is merely declaratory of the common law.

26. As to the nature of such a right, Slade J held that the right is to enable the director to carry out his duties as a director. He further observed that (at p.90C-E) :

" (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 [sic] 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. It will be seen that the proposition contained in this present paragraph is derived from the passage from Street J.'s judgment in Edman v. Ross, 22 S.R.(N.S.W.) 351 which has already been cited. The passage seems to me, if I may say so, consistent with both principle and common sense. If the position were otherwise, a director's rights of inspection could be rendered more or less nugatory, at least for many months, by specious allegations that he was exercising them with intent to injure the company or for other improper motives."

27. Conway v. Petronius Clothing Co. Ltd was applied by Deputy Judge Barnett (as he then was) in Ling Yun Sang v. Chan Hak Kong (unreported) HCA3347/1985, which concerns an interlocutory application for inspection of books of account of the company. Deputy Judge Barnett considered that the defendants have not, either by their own evidence or by analysis of the plaintiffs' evidence, affirmatively proved that the plaintiffs were abusing the confidence reposed in them or intending to injure the company. Nevertheless, the interlocutory relief was refused principally on the basis that the order, if granted, would effectively determine the action.

28. While Slade J held that the director's right of inspection is subject to the court's discretion to withhold an order for inspection, a number of authorities in other common law jurisdictions are of the view that the right is an absolute right and that the applicant bears no initial burden of justifying an order for inspection : Berlei Hestia (NZ) Ltd v. Fernyhough [1980] 2 NZLR 150, Molomby v. Whitehead (1985) 63 ALR 282, Deludge Holdings v. Bowlay (1991) 6 ACSR 36, Welch v. Britannia Industries Pte Ltd [1993] 1 SLR 673 and Wuu Khek Chiang George v. ECRC Land Pte Ltd [1999] 3 SLR 65. These other authorities, however, all recognize that the right of inspection, though regarded as absolute, does not entitle the director to inspect in all circumstances without restriction.

29. For my part, I do not consider whether the right is a common law right, as found by Slade J, or a statutory right, as held in Berlei Hestia (NZ) Ltd v. Fernyhough, is definitive of the nature and limits of the director's power of inspection. What is important is to recognize that the right flows from the office of a director and he, therefore, does not have to justify this request to inspect. Accordingly, in the absence of clear proof to the contrary, the court will assume that he is exercising the right for the benefit of the company.

30. I am therefore inclined to agree that the director's right to inspect books of account of a company is an absolute one, but that the right is not without restriction. The right will be lost if he is removed from his office. He will also be barred from exercising the right where there is clear evidence that he is abusing the confidence reposed in him or that, in exercising the power, he is not advancing the interest of the company but is acting to injure it or for some other improper motive. For improper motive, I do not think that it should be confined to cases of dishonesty or fraud, but will encompass motive that is unrelated to his duties as a director. Given that the director does not have to justify his request to inspect, the onus of establishing abuse, ulterior purpose and detriment to the company will be on the party asserting it.

31. Applying these principles to the present proceedings, it will be for the Husband to show by clear or affirmative evidence that the Wife and the Daughter's applications are motivated by improper self-interest and not for the benefit of the company.

(2) The relevance of the issue of beneficial ownership

32. The Wife and Daughter's power of inspection is, therefore, a corollary of their capacity as directors and their fiduciary duties to the company. The issue of beneficial ownership, therefore, has no direct relevance to the orders sought by the Wife and the Daughter. It is not a case that they can never have a right to inspect the books of account, if the Wife has no beneficial interest in Boldwin and B.F. The resolution of the dispute over beneficial ownership will not finally dispose of these proceedings.

33. It is true that if the Wife indeed has no beneficial interest in the companies, then the Husband will be in a position to remove her and the Daughter from their offices as director whereupon the right of inspection would cease. However, this cannot be a significant concern in considering whether the right of inspection should be withheld. Unlike Conway v. Petronius Clothing Co. Ltd, in which the general meeting to remove the plaintiff directors from office was eminent, it will be a considerable while before the Husband can remove the Wife and Daughter as directors, assuming that the issue of beneficial ownership is ultimately decided in his favour.

34. The issue of beneficial ownership, however, is not totally irrelevant to the present applications. It is relevant to the issue of the motive behind the applications to inspect as providing the factual matrix surrounding the applications.

35. Despite the perceived relevance of the issue of beneficial ownership, I do not consider that it must be resolved, either in HCA2623/2001 or in these proceedings, before the applications to inspect can be properly determined. Both the Husband and the Wife have in their affirmations stated their case and adduced evidence in support of their claims. It is evident that the issue is hotly contested and there is a serious dispute over it. This, in my view, will be the extent of the relevance of the issue. The issue of beneficial ownership is only one of the factors or circumstances to be considered in assessing the purpose or motive of the present applications. As previously pointed out, whether the issue is finally resolved in the Husband or the Wife's favour has no bearing on whether the right of inspection exists. There is also no immediate prospect of removing the Wife and the Daughter from their offices as directors.

36. The determination of the issue of beneficial ownership is therefore not necessary for doing justice to the parties on the present applications. The stay sought for will also not serve any useful purpose. The applications for stay are, therefore, refused.

THE APPLICANTS TO INSPECT

37. I turn now to deal with the applications to inspect. The pertinent issue here is the purpose or motive behind the applications. In addressing this issue, I agree with senior counsel for the Husband that the court should not overlook the fact that the parties, save Mr Yip, are family members and also the family dimension of the matter.

38. In this connection, I am aware that there are substantial disputes between the parties over a number of allegations. I am also conscious that the court should refrain from embarking upon a mini-trial on affidavits. If there are arguable issues of facts material to the determination of these applications, the proper course would be either to convert these proceedings into writ actions or to direct a trial on the issues in question. Nevertheless, an objective assessment of the evidence before the court suggests that the matrimonial discord between the Husband and the Wife is a significant attribute to these applications to inspect.

39. In the first place, it is apparent that the relationship between the Husband and the Wife had not been harmonious since at least 1999. It is not disputed that the Wife, joined by the Daughter, moved away from the matrimonial home in May 1999. The Husband says that this was preceded by a challenge or confrontation as to his infidelity. The Wife did not really dispute this, although she denies that this is relevant to the applications to inspect. Notwithstanding that, various steps were taken by the Wife after February 1999, when the confrontation allegedly took place, that are controversial and prima facie have the effect of securing her interests and her position in the two companies. It seems to me that this is too much of a coincidence.

40. The activities of the Wife escalated and cumulated in the refusal to counter-sign the cheques of B.F. While I would not go so far as saying that all her refusals were without justification or were actuated by the desire to cause difficulties to the company, I cannot agree with the Wife's assertion that she was merely being vigilant in discharging her duties as a director. Her persistent refusal to sign the cheque for employee compensation payment to Yip Chiu Ling, after it had been made clear that the discrepancy was occasioned by a typing error, affords a clear contradiction to her assertion. It also demonstrates her determination to be unco-operative or uncompromising, to say the least, over the affairs of the company. Looking at the events that have happened since 1999, it seems that the two companies have been turned into battlefields for fighting out the matrimonial acrimony between the Wife and the Husband.

41. The Wife and the Daughter stress that the inspections sought are for the purpose of discharging their duties as directors. They say the need to inspect arises out of the irregularities and discrepancies they discover in the accounts of the companies supplied to them. But they have not identified what aspect of their director's duties that necessitates the inspections sought or will be facilitated by the inspections. In the case of Boldwin, the 1998 and 1999 accounts had been audited by DTT. It is true that they were qualified by DTT, but the qualified opinions relate primarily to accounting treatment. It is difficult to understand the purpose of having another firm of auditors, Price Waterhouse Coopers, to inspect the books of account and the wide range of documents described in the Originating Summons. Similarly, the draft accounts of B.F. would in due course be audited by the company's auditor, and it is therefore difficult to see how inspection of the company documents by the auditor nominated by the Wife and Daughter at this stage can be relevant to the discharge of duties as directors.

42. There is in addition the inexplicable feature of inaction on the part of the Wife and the Daughter. They have waited for many months after receipt of the accounts before making demands for inspection. One would have expected them to take prompt action to either follow up with DTT or make immediate attempt to examine the company books and records, had they been so concerned about the alleged irregularities in the accounts.

43. In his submission in reply, leading counsel for the Wife and the Daughter points out that it is part of a director's duty to protect the company assets, to trace company assets that had been misappropriated and to take action against tortfeasors. It is submitted that the Wife and the Daughter are under such duties, having regard to the fact that there are third party investors in Boldwin and also third party interest in B.F. The suggestion appears to be that the inspections sought are to enable them to identify any mischief or wrong done to the two companies by the Husband.

44. That seems to me to be turning the applications for inspection into a pre-action discovery or even an exercise to fish for evidence. Quite apart from whether the attempt to search for any misfeasance on the part of the Husband is justified by the material placed before this court, such an attempt clearly falls outside the purpose of a section 121 application. Still less will the present applications come within the limits of the director's right of inspection, when viewed against the background of family discord and the substantial dispute over the beneficial ownership of the two companies.

45. In my judgment, the present applications are attempts by the Wife to collect evidence and to gather ammunition for the battles over the interests in the two companies and/or the matrimonial disputes. They are to serve her own purpose and interest instead of the interest of the two companies. Although the Daughter is not a party to the dispute over the beneficial ownership or the divorce proceedings, I do not consider that her position can be distinguished from that of the Wife. It is noteworthy that unlike the Wife, prior to the formal letter of demand, she had made no request to inspect company books and account. It is clear that she is lending assistance to her mother in these applications.

46. It may be argued that in seeking her own interest, the Wife may collaterally be promoting the interest of the companies if eventually some misfeasance is detected. Firstly, such an argument is speculative and is premised upon the assumption that the exercise will turn out to be fruitful. Secondly and more importantly, it overlooks the fiduciary duties of a director not to place his personal interest before that of the company. Where a director, driven by improper motive or self-interest, seeks to examine corporate books and records, under a claim of duty, he is abusing his position as well as abusing the confidence reposed in him. This would be the same even though his activities incidentally generate some benefits to the company.

47. On the material before the court, I am satisfied that the Husband has shown affirmatively that the applications for inspection are motivated by self-interest and not for the purpose of advancing the interest of the company. The Wife and the Daughter have therefore abused the confidence reposed in them such that they should be barred from enforcing their right to inspect.

48. Leading counsel for the Wife and the Daughter submits that the worries as to abuse of confidence can be removed by the undertaking not to make improper use of documents disclosed upon discovery or compulsion of court process implied by law. That implied undertaking is irrelevant to the present applications, which are applications for inspection in the context of a company and are not applications for discovery or disclosure of documents. The fact that the Originating Summons seeks, inter alia, an order for production of documents cannot alter the nature of the applications. At any rate, it is not just the intended use of the corporate documents that the court has to take into account, but the court must also have regard to the purpose and motive behind the application. The two may sometimes overlap, but they are not necessarily the same consideration. Accordingly, the two applications for inspection should be dismissed.

THE POSITION OF MR YIP

49. That would have been sufficient to dispose of these proceedings. However, in view of the considerable submissions advanced on behalf of Mr Yip and the bearing on the costs issue, I shall deal briefly with the position of Mr Yip.

50. In my view, the joinder of Mr Yip in these proceedings is unnecessary and unjustified. It is common ground that the books of account and records of B.F. are kept at the office premises. They are not in Mr Yip's possession. It is, however, said that they are within his custody and power. The onus of establishing this is on the applying party. It is contended that by reason of his being the registered person of B.F. and a member of the board of directors, he must have access to and is in a position to ask for these documents and to provide them to the Wife and/or the Daughter for inspection. The contention ignores the reality, namely, that Mr Yip has no controlling or beneficial interest in B.F. and is a mere employee. It cannot be realistically suggested that he can on his own volition and decision, make the documents available to the Wife and/or the Daughter without regard to the views of the Husband. It is therefore immaterial that he is on the board of directors. Equally immaterial is the fact that he is a registered person and will have to come across some or all these documents. The Wife is herself a registered person for Boldwin and has been in that position since 1977. On her case, she has been intimately involved in the business and activities of Boldwin. She would, if her contention is right, also have the opportunity to come across these company documents. Yet she has to apply to the court for an order for inspection. This illustrates that Mr Yip, albeit the registered person of B.F., does not necessarily have custody and power over the company books and records.

51. After all, it must be plain that the dispute or disagreement over inspection of corporate books and records is very much a dispute between the Husband and the Wife. There is little purpose to be served by joining Mr Yip, who evidently has no role to play in resolving the dispute. Mr Yip's position in B.F. is no different from that of LHS and CWL vis-à-vis Boldwin. The Wife has chosen not to join the latter two, who are her relatives, in these proceedings.

52. The Wife and the Daughter seek to justify the joinder of Mr Yip on the basis that he had not responded positively or at all to the requests for inspection made by the Wife. It is apparent from the correspondence that these requests were in fact directed to B.F., although for the joint attention of the Husband and Mr Yip. Not only that, the Wife had similarly in the context of Boldwin made requests for inspection to LHS and CWL and had received no response from them. If application for inspection is not made against LHS and CWL, I fail to see the necessity and justification for naming Mr Yip as a defendant.

53. Not only is the decision to join Mr Yip unjustifiable, but the decision to refuse to accept Mr Yip's offer to withdraw these proceedings against him on a "no order as to costs" basis is also unjustified. By any view of the matter, Mr Yip should not have been made to go through these proceedings and to incur legal costs on them. It is said that he could have simply indicated to the court that he would abide by any order made. But if Mr Yip has no custody or power over the documents sought to be inspected, he cannot be expected to give that indication. He will have to inform the court that he does not have custody or power over the documents, at least as a measure of self-protection. In the correspondence exchanged between the solicitors, Mr Yip was asked, through his solicitors, to confirm that that he did not wish to be legally represented at this hearing. That seems to me to be an extraordinary invitation to be made to an opponent party.

54. For all the above reasons, the two Originating Summons have to be dismissed.

COSTS

55. On the question of costs, I reckon that the Husband has failed in the applications for stay and should bear the costs thereof. However, the arguments involved in the stay applications overlap substantially with those on the Originating Summonses. The additional time taken up on the stay applications in the hearing are minimal. In the circumstances, I will not apportion the costs for the hearing.

56. As for Mr Yip, I have observed that he has been unnecessarily made a party in HCMP703/2001. In my view, he ought to be fully compensated for his costs which was unnecessarily incurred. His costs is to be taxed on an indemnity basis, if not agreed.

CONCLUSION

57. The orders I make are as follows :

HCMP702/2001

(1) The 2nd defendant's summons filed on 19 June 2001 be dismissed with costs to the plaintiff.

(2) The Originating Summonses be dismissed.

(3) The plaintiff pays the 2nd defendant the costs of the action, including the costs of the hearing on 9 and 17 July 2001, to be taxed if not agreed.

HCMP703/2001

(4) The 2nd defendant's summons filed on 19 June 2001 be dismissed with costs to the plaintiffs and the 3rd defendant.

(5) The Originating Summons be dismissed.

(6) The plaintiff pays the 2nd defendant the costs of the action, including the costs of the hearing on 9 and 17 July 2001 to be taxed if not agreed.

(7) The plaintiff pays the 3rd defendant the costs of the action, including the costs of the hearing on 9 and 17 July 2001 to be taxed on an indemnity basis if not agreed.