WONG TAK MING AND ANOTHER v. CREATIVE PACIFIC LTD

HCMP 687/2019

[2020] HKCFI 973

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 687 OF 2019

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BETWEEN

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J U D G M E N T

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A. INTRODUCTION

A1.    The application before the court

1.  By an originating summons of 9 May 2019 (“Originating Summons”), the Plaintiffs applied for an order for inspection of various documents and records of the Defendant (“the Company”) pursuant to s 740 Companies Ordinance, Cap 622 (“CO”).

2.  The application was originally set down for argument on 23 March 2020, but was adjourned pursuant to the general adjournment of court proceedings announced by the Judiciary by reason of public health considerations. The parties have since agreed that the application should be determined on the papers.

A2. The background

3.  The Company is a limited company incorporated in Hong Kong with a total of 12,010,000 issued shares, of which the 1^st Plaintiff owns 2,402,000, representing 20% of voting rights of members, and the 2^nd Plaintiff owns 1,201,000, representing 10% of voting rights.

4.  The sole director and shareholder of the 2^nd Plaintiff is Yau Tin Sang (“Mr Yau”).

A2.1 The First Investment

5.  It is the Plaintiffs’ case that in about April 2010, the sole director of the Company, Richard Lee Man Fai (“Mr Lee”), asked the 1^st Plaintiff and Mr Yau to provide financial assistance to the Company, which was having financial difficulties.  They say that Mr Lee said that the Company was carrying on the business of garment manufacturing and sale, including running a project/brand called “V ONE” in the garment industry.  The 1^st Plaintiff and Mr Yau agreed, and pursuant to Mr Lee’s request:

5.1 the 1^st Plaintiff drew a cheque dated 30 April 2010 for HK$2,000,000 in favour of Wo Kee Hong Ltd (“WKH Ltd”).  It is not disputed that Mr Lee was one of the five directors of WKH Ltd and held one of the two ordinary shares at the time;

5.2 Mr Yau, on behalf of the 2^nd Plaintiff, drew a cheque dated 18 May 2010 for HK$1,000,000 in favour of Wo Kee Hong (Holdings) Ltd (“WKH Holdings”).  It is not disputed that Mr Lee was the Executive Chairman, Chief Executive Officer and the single largest shareholder at the time.

6.  The Plaintiffs say that this was their first investment into the Company (“the First Investment”).  In return, on 4 June 2010, Mr Lee arranged for the transfer of 2,000 of the Company’s shares to be transferred to the 1^st Plaintiff from Famous Name Holdings Limited (“Famous Name”), and 1,000 of the Company’s shares to be transferred to the 2^nd Plaintiff from Victory Globe International Limited (“Victory Globe”).

7.  For its part, the Company says that it was incorporated primarily to hold a PRC subsidiary 上海新概念服飾有限公司 (“the PRC Subsidiary”), which mainly engages in the business of distribution and retail of fashion apparel under its self-owned brand “V-One”.

8.  The Company says that the First Investment came about not because Mr Lee made any representation that the Company was having financial difficulties or that funds would be invested into the Company, but rather, because the Plaintiffs were interested in investing in the Company. The First Investment was simply a purchase of shares by the Plaintiffs from Famous Name and Victory Globe.

9.  The Company says that as Famous Name was incorporated in the BVI and did not have an operating bank account, it directed the 1^st Plaintiff to draw a cheque in favour of WKH Ltd.  Victory Globe directed the 2^nd Plaintiff to draw a cheque in favour of WKH Holdings.  The Company itself was not supposed to receive any funds from the Plaintiffs.

A2.2 The Second Investment

10.  The Plaintiffs say that a few months after the First Investment, Mr Lee approached the 1^st Plaintiff and Mr Yau again, seeking further investments into the Company.  At Mr Lee’s request, the 1^st Plaintiff drew a cheque for HK$3,600,000 in favour of WKH Ltd, comprising HK$2,400,000 from the 1^st Plaintiff and HK$1,200,000 from the 2^nd Plaintiff.

11.  The Plaintiffs say that this was their second investment into the Company (“the Second Investment”).  In return, in August 2011, the 1^st Plaintiff was allotted 2,400,000 shares in the Company, and the 2^nd Plaintiff was allotted 1,200,000 shares in the Company.

12.  The Company’s case is that its shareholders agreed to increase the share capital of the Company, and applied to subscribe for further shares.  The board of directors resolved to allot 12,000,000 shares at HK$1 each, of which 2,400,000 were allotted to the 1^st Plaintiff, and 1,200,000 were allotted to the 2^nd Plaintiff.  All of the newly allotted shares were fully paid up, and the sums received were invested into the PRC Subsidiary.

A2.3 Events giving rise to the Plaintiffs’ application

13.  The Plaintiffs say that they have been kept in the dark as to the Company’s affairs.  They have not been provided with the Company’s audited accounts.  In 2014, Mr Lee informed the 1^st Plaintiff and Mr Yau “out of the blue” that all their investments in the Company (that is, HK$6,600,000) had been lost, but without any explanation.  The Plaintiffs say that they were not suspicious about this at the time, but subsequently, the Plaintiffs suspected that their investments might have been siphoned off for Mr Lee’s personal use.

14.  On the Plaintiffs’ instructions, Messrs Ng and Partners issued a letter dated 19 November 2018 to the Company, asking for (inter alia) accounting records showing the receipt by the Company of the First and Second Investments.

15.  By a letter of 30 November 2018, Messrs Ho & Ip, on behalf of Mr Lee and the Company, responded that the First Investment was in fact a purchase of shares by the Plaintiffs, and the Second Investment was invested into the PRC Subsidiary.  It was further said that the Plaintiffs were aware that the PRC Subsidiary had recorded an accumulated loss of over RMB 25 million during the period from 2012 to 2017.

16.  The only documents provided by Messrs Ho & Ip (by a letter of 2 April 2019) were a copy of the Company’s financial statements for the year ending 31 December 2014, which was described as its latest financial statements, and a copy of the written resolution of all members of the Company dated 16 August 2011, which was said to have been the only written resolution recorded in the previous ten years.

17.  The Plaintiff seeks information as to the receipt and use of the First and Second Investments by the Company.  They seek an order for the inspection of:

17.1 all the annual financial statements and directors’ reports of the Company since its incorporation (other than for the year ending 31 December 2014);

17.2 all accounting records including but not limited to bank statements and bank receipts and books recording or evidencing the receipt by the Company of a total sum of HK$6,600,000 from the Plaintiffs, comprising:

17.2.1 HK$2,000,000 from the 1^st Plaintiff in or about April/May 2010;

17.2.2 HK$1,000,000 from the 2^nd Plaintiff in or about May 2010;

17.2.3 HK$2,400,000 from the 1^st Plaintiff in or about May 2011; and

17.2.4 HK$1,200,000 from the 2^nd Plaintiff in or about May 2011;

17.3 all written records of the sole director’s decision for the past 10 years in relation to the use of all monies received from the Plaintiffs in the total sum of HK$6,600,000 (as set out in the previous subparagraph), in particular the use of any part of the same on the PRC subsidiary;

17.4 all of the Company’s accounting records including but not limited to bank statements, bank receipts and books recording or evidencing the Company’s investment and/or use of the total sum of HK$3,600,000 (ie the payments for the Second Investment) into the PRC Subsidiary.

18.  The Company says that throughout the years, the Plaintiffs have never shown much interest in the Company.  They were aware that the PRC Subsidiary had accumulated substantial losses and ceased most of its operations since 2013.  It was only after Mr Lee brought legal proceedings in July 2018 against a business partner and friend of the 1^st Plaintiff, Benjamin Yip Pak Keung (“Mr Yip”), that the Plaintiffs initiated the current proceedings against the Company.

B. THE PRINCIPLES APPLICABLE TO AN APPLICATION UNDER S 740 CO

19.  Apart from documents to which he is entitled pursuant to the provisions of the Companies Ordinance, a shareholder generally is not entitled to inspect a company’s documents, or obtain copies of them: Re Opes Asia Development Ltd, unreported, HCMP 477/2012, 17 May 2012, at [4]. However, he can apply to court for an order for inspection under s 740 CO.

20.  Section 740 CO provides as follows.

“(1) On application by a required number of a company’s members, the Court may make an order —

(a) authorizing a person who is the applicant or one of the applicants to inspect any record or document of the company; or

(b) authorizing a person who is not the applicant or one of the applicants to inspect any record or document of the company on behalf of the applicant or applicants.

(2) The Court may make an order authorizing a person to inspect a record or document if it is satisfied that —

(a) the application is made in good faith; and

(b) the inspection is for a proper purpose.

…

(6) In this section, a reference to a required number of a company’s members is a reference to—

(a) the number of members that represents at least 2.5% of the voting rights of all the members having a right to vote at the company’s general meetings at the date of application; or

(b) at least 5 members of the company.”

21.  Section 740 CO confers on the Court a discretion, upon the application of the requisite number of members of a company,[1] to order the inspection of a company’s records or documents if the 2 requirements set out at s 740 CO are satisfied, namely:

21.1 the application is made in good faith, and

21.2 the inspection is for a proper purpose.

See Re Bank of East Asia Ltd [2015] 4 HKC 137 at [24], per Harris J.

22.  Under s 739 CO, the terms “record” and “document” are to have the meaning given by s 838(1).  For current purposes, I note that s 838(1) defines “record” to include “any books”, and that “books” is in turn defined to include “accounts and accounting information, however compiled or stored, and whether or not recorded in a legible form”.

23.  The parties were largely in agreement as to the principles applicable to an application under s 740 CO, and the requirements of “good faith” and “proper purpose”.  They have been variously put in the authorities, and I refer to the judgment of the Court of Appeal in Veron International Ltd v RCG Holdings Ltd [2013] 3 HKLRD 657, where Yuen JA, with whom the other members of the Court of Appeal agreed, said as follows:

“19. The relevant principles have been set out in Acehill Investments Pty Ltd v Incitec Ltd [2002] SASC 344, [29], adopted by this Court (Chu JA, Suffiad and Bharwaney JJ) in Re LehmanBrown Ltd [2011] 5 HKLRD 668, [31], which is set out below for ease of reference:

1. The requirement that the applicant is acting in good faith and that the inspection is to be made for a proper purpose expresses a composite notion and the court will determine whether each has been demonstrated by applying an objective test: Barrack Mines Ltd v Grants Patch Mining Ltd [1988] 1 Qd R 606; Knightswood Nominees Pty Ltd v Sherwin Pastoral Company Ltd (1989) 7 ACLC 536 at 540-541.

2. The onus is on the applicant to demonstrate that he is acting in good faith and that the inspection is for a proper purpose: Intercapital Holdings Ltd v MEH Ltd (1988) 6 ACLC 1068 at 1074.

3. The section operates where the applicant seeks to protect some specific or personal right by the making of the order. Examples are where a shareholder contemplates proceedings under s 233 of the Corporations Act (the statutory successor of s 320 of the Companies Code); Re Augold NL [1987] 2 Qd R 297 at 308-309; Re Humes Ltd [1987] VicRp 43; (1987) 5 ACLC 64 at 68-69; Grants Patch Mining at 107; or where a shareholder reasonably takes the view that a transaction could adversely affect his investment and he seeks to investigate the transaction for the purpose of determining what action he should take: Intercapital Holdings at 1074-1075; or where a shareholder seeks to ascertain facts for the purpose of considering a takeover offer: Knightswood Nominees Pty Ltd v Sherwin Pastoral Company Ltd at 539. Other examples are provided in a number of the cases listed in the appendix.

4. If the applicant's primary or dominant purpose is a proper purpose, it is not to the point that an inspection may be of benefit to the applicant for some other purpose: Re Humes Ltd at 70; Grants Patch Mining at 109-110; Cescastle Pty Ltd v Renak Holdings Ltd (1991) 9 ACLC 1333 at 1335.

5. The rights provided by s 247A[2] should not be regarded as affecting the basic rule of company law that a shareholder should not ordinarily have recourse to the courts to challenge a managerial decision made by or with the approval of the directors: Re Humes Ltd at 68-69; Grants Patch Mining Ltd at 614.

6. Since every shareholder has a right to apply under the section for an inspection order, it is no answer to an application that, if an order is made, the applicant may acquire information not available to other shareholders and thereby be in a more advantageous position than those shareholders: Re Humes Ltd at 70; Grants Patch Mining at 615.

7. Applicants do not necessarily lack a proper purpose merely because:

(a) they are hostile to other directors; or

(b) they will, after inspection, have more information than other members: Re Humes Ltd at 70.

8. The procedure under s 247A is not intended to be a process as wide-ranging as the process of discovery of documents so that, as a general rule, inspection will be confined to, say, the results of decisions of directors rather than all the documents such as board papers leading to decisions: Re Claremont Petroleum NL (No 2) [1990] 2 Qd R 310 at 314. I emphasize that this is a general rule. There may be occasions where it is proper to admit inspection of board papers. I examine this question in a moment.

9. Even where an applicant is acting bona fide and has shown a proper purpose, the court has a discretion whether to order inspection: Re Humes Ltd at 70.”

24.  On the relationship between the two requirements of “good faith” and “proper purpose”, Chu JA, giving the judgment of the court in Re LehmanBrown Ltd [2011] 5 HKLRD 668, said as follows.

“34. We accept that s 152FA expresses a composite notion so that the inspection is to be made in good faith and for a proper purpose. This does not however mean that if a proper purpose is proved, a case of good faith shall follow or is to be assumed. The position is explained by Brooking J in Knightswood Nominees Pty Ltd v Sherwin Pastoral Co Ltd (1989) 15 ACLR 151, 156:

The language actually used in [s 265B(1)(b)] does suggest that there are two distinct matters to be considered: the court must be satisfied that the member is acting in good faith and that the inspection is to be made for a proper purpose. No doubt the purpose set up by an applicant must be a genuine, not a pretended purpose, quite apart from the express mention of good faith. Once it is accepted that one can up to a point go on asking “Why do you want to do that?” in ascertaining purpose, I do find it hard to see how anything that could be investigated in relation to good faith could not also be investigated in relation to proper purpose. I am disposed to think that, notwithstanding the way in which para. (b) of s 265B(1) is constructed, all that the reference to good faith does is to remind us, first, that the proper purpose set up must not be a mere pretence, and, secondly, that in considering purpose it will be necessary to go beyond the mere desire to obtain information by the inspection of books and ask what the applicant wishes to achieve as a result. Putting the matter another way, I am disposed to think that the section requires the court to be satisfied that the applicant is acting, or that the inspection is to be made (there is no distinction here), “in good faith for a proper purpose” and that this expression is a composite one.”

25.  As the Plaintiffs’ written submissions noted, the difference in approach which some of the authorities suggest as to whether the requirements are independent or separate may be more apparent than real.  In any event, there is no dispute between the parties that no matter whether the “good faith” and “proper requirements” are treated as independent or separate tests, they would produce the same result in the present case.

26.  Furthermore:

26.1 An applicant must show that the purpose must be to assist him in his capacity as a member; the purpose must be genuine and not a mere pretense.  The procedure is not a form of, and should not be used as a substitute for, discovery or inspection after discovery by list or affidavit.  See Re LehmanBrown Ltd at [35], [41].

26.2 A wish to inspect documents to investigate a genuine and credible belief that there has been corporate mismanagement is capable of constituting a proper purpose.  Generally, where the court is satisfied that the “purpose” is germane to a shareholder’s economic interest in the company, a “proper purpose” will have been satisfied.  See Bank of East Asia Ltd at [25(5)].  As part of establishing a proper purpose, the applicant has to show that there is “a sufficiently reasonable case for investigation” as regards past or future wrongful or other undesirable conduct. The shareholder may fail to obtain inspection where he fails to make out on his own material some kind of case for investigation, or where the corporation is able by leading evidence to dispel whatever suspicion has reasonably been aroused.  See Bank of East Asia Ltd at [25(5), 25(7)].  Where inspection is sought on the basis of suspected wrongful conduct, there must be proper evidence to support a case for investigation.  See Re LehmanBrown Ltd at [43].

26.3 Even if a proper purpose is established, a shareholder is not entitled to abuse his entitlement by going on a fishing expedition through vast amounts of the company’s records in search of a cause of action to support his mere suspicion of wrongdoing.  Such an approach would be excessively intrusive and beyond what is reasonably necessary.  See Wong Kar Gee Mimi v Hung Kin Sang Raymond [2011] 5 HKLRD 241 at [40].

26.4 The court is not required, and should not endeavour, to reach conclusions about the merits of the matters relied on as constituting a “proper purpose”.  The court needs to be satisfied that a proper purpose has been established and that in the exercise of the court’s discretion it is a proper case in which to make an order for inspection: Bank of East Asia Ltd at [26].  As to what process this involves, Harris J cited Leung Chun Pun v Masterwise International Ltd [2014] 1 HKLRD 1129 at [25] per Recorder Anderson Chow SC (as he then was):

“Where, as in the present case, the application for inspection of a company’s records is for the purpose of enabling the plaintiff to carry out investigation into alleged misconduct or maladministration, it would not be possible or appropriate for the court to reach a firm conclusion on each complaint raised because, amongst other things, the evidence would likely not be complete, it is unlikely that disputes of fact can be resolved on affidavit evidence alone, and the complaint may well be raised again in subsequent proceedings for adjudication. Accordingly, what I consider the court should do is to assess, on the basis of the available evidence, whether the plaintiff has made out a proper case for investigation taking into account such explanations as may be offered by the defendant. If the plaintiff is able to make out a proper case for investigation, the court should move on to consider whether, in the exercise of its discretion, the inspection sought ought nevertheless to be refused. The statute does not lay down any restriction as regards the matters which the court may take into account when exercising its discretion. Thus, the court is entitled to take into account a wide spectrum of matters. However, as cautioned by Harris J in Wong Kar Gee Mimi v Hung Kin Sang Raymond (supra), [34]-[37], the court should strike a proper balance between (i) requiring the company to be transparent and (ii) not permitting the statutory jurisdiction to be used by a shareholder to challenge managerial or commercial decisions made by the board of directors of the company. How this balance should be struck in any given case can only be determined on a case by case basis.”

26.5 Once the court is satisfied that the applicant has established a “proper purpose”, the company should be required to be transparent: Bank of East Asia Ltd at [25(8)].

26.6 The assertion of a proper purpose and good faith must be tested against the proper context of the application: LehmanBrown Ltd at [36].

26.7 The fact that the applicant may have other means of obtaining the information elsewhere does not mean that he cannot satisfy the requirements of good faith and proper purpose, but this will be relevant to the Court’s discretion as to whether to grant an order: Veron International Ltd at [38.2].

C. WHETHER APPLICATION FOR PROPER PURPOSE

27.  The Plaintiffs say that they seek to investigate a possible misuse of the funds which they had intended would be received by the Company, and possible misconduct by Mr Lee.

28.  As to the First Investment, the Plaintiffs say that this was not received by the Company, contrary to what they say they were told (by Mr Lee) would happen to the funds.  The Company says that this is not a proper purpose because there is no real or genuine case for investigation, the First Investment simply being the Plaintiffs’ payment for the purchase of shares in the Company.  It was a straightforward transaction of purchase of shares from a third party and did not, and was not supposed to, involve the Company at all.  The instrument of transfer for the shares acquired by the 1^st Plaintiff recorded that Famous Name was transferring 2,000 shares in consideration of the HK$2,000,000 paid by the 1^st Plaintiff; similarly, the instrument of transfer for the shares acquired by the 2^nd Plaintiff recorded that Victory Globe was transferring 1,000 shares in consideration of the HK$1,000,000 paid by the 2^nd Plaintiff.

29.  However, I note that:

29.1 the nominal value of each share in the Company was HK$1, and there is no evidence as to how the valuation of 2000 shares at HK$2,000,000 (and 1,000 shares at HK$1,000,000) was arrived at;

29.2 the Company has not given any information as to the identity of the persons behind Famous Name or Victory Globe (nor has any evidence been provided from Famous Name or Victory Globe).  The Plaintiffs have advanced a surmise that they may be Mr Lee’s corporate vehicles, which surmise has not been denied;

29.3 the 1^st Plaintiff’s cheque for the First Investment was accompanied by his note saying “Dear Richard, As spoken, $2m cheque for investment of Vone.  A little meaning and means little.” This appears to be consistent with the 1^st Plaintiff’s case that his intention was for the First Investment to be an investment into the Company;

29.4 this is also consistent with the note that accompanied the Second Investment, written by the 1^st Plaintiff (“Dear Richard The second part of investment for Vone from Yau and me please”). The Company accepts that the Second Investment was supposed to be an investment, and says that the funds were received and injected into the PRC Subsidiary.

30.  Of course, it is not possible at this stage to resolve the stark difference between the Plaintiffs’ and Company’s versions as to what the First Investment was for.  However, on the material currently before me, the Plaintiffs’ account of the First Investment as intended to be funds injected into the Company is credible.  It is not denied that the funds were not so injected.  In the circumstances, I accept that there is a sufficiently reasonable case for investigation.

31.  As for the Second Investment, it is the Company’s case that the HK$3,600,000 was injected into the PRC Subsidiary, via deposits made by Mr 黃健, a director of the Company, who made deposits of approximately RMB 2,980,800 into the bank accounts of the PRC Subsidiary on around 17 and 18 May 2011.[3]

32.  The Company says that the injection of funds is reflected in the Company’s and the PRC Subsidiary’s accounts.  However, the only evidence produced in support was as follows.

32.1 There was a document said to be a “copy of record from bank showing that a sum of RMB 2,980,800 were remitted to the PRC Subsidiary via one Mr 黃健”. This was a one-page ledger-like document which did not bear any letterhead or logo.  It listed out various deposits and withdrawals made by Mr 黃健, four of which on 17 and 18 May 2011 totalled the figure of 2,980,000.  It did not show the provenance of the 2,980,000 or any other link to the Plaintiffs’ HK$3,600,000.

32.2 The Company relied on its audited accounts for various years.  In the accounts for the year ending 31 December 2011, under “current assets”, the figure of HK$14,340,003 was given for “other receivables”.  In the prior year, no figure had been given for this item.  It was said that the HK$14,340,003 in the 2011 accounts “included the funds advanced by the Company to the PRC Subsidiary following the allotment”.[4] In the accounts for the year ending 31 December 2014, the figure was reclassified as “amount due from a subsidiary”.  There was, however, no documentary evidence showing the link between the Plaintiffs’ HK$3,600,000 (or any part thereof) and the HK$14,340,003 sum, or any notes in the accounts explaining the same.

32.3 The Company produced the audited accounts for the PRC Subsidiary for 2011, which showed that the PRC Subsidiary owed RMB 7,731,280 to Mr 黄健 and RMB 1,936,976 to Ms 王春莉.  It was said that these sums “represented the sum advanced by the Company to the PRC Subsidiary in 2011 following the allotment (Ms 王春莉 was a staff member of the representation office of Wo Kee Hong Limited in Beijing, and the Company advanced the sum to the PRC Subsidiary via Mr 黄健and Ms 王春莉)”.[5] Again, there was no documentary evidence showing the link between the Plaintiffs’ HK$3,600,000 (or the allotment generally) and the sums owed by the PRC Subsidiary to these two persons.

33.  I note that the Company’s solicitors said in their letter of 2 April 2019 that the audited accounts for the year ending 31 December 2014 were the “latest” ones.[6] I note also that First and Second Investments were paid to WKH Ltd and WKH Holdings, in which Mr Lee had an interest and held positions.  I accept that in the circumstances, there is a reasonable basis for the Plaintiffs’ suspicions that the Second Investment was not, in fact, injected into the PRC Subsidiary as claimed, and may have been misused, and that the bare assertions in Mr Lee’s affirmation do not dispel them.

34.  I therefore accept that the Plaintiffs are seeking an inspection of documents in relation to the First and Second Investments for a proper purpose.

D. WHETHER APPLICATION IN GOOD FAITH

35.  The Company says that the application is not made in good faith since (a) the application is based on bare assertions and mere speculation, (b) the Plaintiffs took no interest in the Company’s affairs until Mr Lee commenced legal proceedings against the Plaintiffs’ friend in July 2018 (so that the application is merely “revenge”), (c) the Plaintiffs have delayed in taking any action, even though they themselves say that they knew as early as 2014 that they had lost their investment, and (d) the Plaintiffs’ request is unreasonably wide, asking for financial statements predating their investments.

36.  On the first point, as explained in section C above, I consider that there is basis for the Plaintiffs to seek information in relation to their investments, and that this is not simply based on assertion or speculation. 

37.  On the second point, the Company says that the Plaintiffs have admitted that their requests for inspection were prompted by Mr Lee’s action against Mr Yip.  The Plaintiffs say that they had been told in 2014 by Mr Lee that all their investments in the Company had been lost, and they had believed this, given that investments inherently carry risk and that they did not think that Mr Lee would lie to them.  It was only when Mr Lee commenced proceedings against Mr Yip and made various allegations which were contrary to the terms on which the 1^st Plaintiff had dealt with Mr Lee that it prompted the 1^st Plaintiff to consider whether Mr Lee may have made other untrue allegations in the past.[7] Whilst I am not able to resolve such disputes of fact on affidavit, there is nothing that is inherently incredible about the Plaintiffs’ explanation.  The Company’s surmise of “revenge” is only speculative: there is no material currently before me that suggests that the Plaintiffs have gone to the extent of placing false evidence before the Court so as to enable the application to be brought for “revenge” purposes, without proper basis.

38.  The Company’s third point (delay) largely overlaps with the second point, which I have addressed.  The Company also cites Re LehmanBrown for the proposition that where an applicant had the rights to access the Company’s records but failed to exercise them prior to the relationship turning sour, this is relevant to the requirement of good faith and proper purpose.  However, as the Plaintiffs have observed, the context of Re LehmanBrown was different, as the petitioner’s nominee there was a director of the company and therefore had had rights of access to its books and records, but did not exercise such rights.  In the present case, the Plaintiffs were shareholders rather than directors, with more limited rights of access to books and records.

39.  In relation to the fourth point, the Plaintiffs seek to meet this by indicating their willingness to limit the scope of inspection of financial statements to those from the year ending 31 December 2010 onwards, that is, the year in which they made the First Investment.  In any event, in the context of the present application, I would not infer a lack of good faith purely from the breadth of paragraph 1.1 of the Originating Summons.  I note that the other requests are directed specifically at the First and Second Investments (and this also distinguishes the case from the much broader application brought in Re Opes Asia Development Ltd cited by the Company).

E. DISPOSITION

40.  I make an order in terms of paragraphs 1, 2 and 3 of the Originating Summons, save that in relation to paragraph 1.1, the annual financial statements and directors’ reports to be inspected should be limited to those for the year ending 31 December 2010 onwards.

41.  I further make a costs order nisi that the costs of the application should be paid by the Company to the Plaintiffs, with certificate for (one) counsel, to be taxed if not agreed.