XCHRX FONG YOCK YEE v. TRUE KIN DEVELOPMENT LIMITED

1995, MP No. 1629

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

MISCELLANEOUS PROCEEDINGS

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D E C I S I O N

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1. This is an application by Mr. FONG Yock-yee to inspect various books and records of the company True Kin Development Limited in the company of his accountant, a Mr. LAW Yuk-lun.

2. The brief history of the matter is that the company was set up by Mr. FONG as a co-founder not that long ago - 1991 - and there seems to be some underlying dispute between Mr. FONG and the other directors of the company. I know very little of that and the evidence is very sketchy, however it does emerge that there are some differences between them.

3. It emerges in this way: that on 8th June of this year Mr. FONG's solicitors wrote to the company saying that they wished to inspect the books. On 10th June the solicitors again wrote to the company, again saying that they wished to inspect the books, and identifying the two accountants who they wished to carry out the inspection of books. On 12th June the two accountants attempted to inspect the books but that was not allowed, partly for the reason that Mr. FONG himself was not present. On 13th June there was a company meeting and thereafter Mr. FONG ceased to be a director. This application was launched about nine days later, on 22nd June. Unfortunately it has taken a certain amount of time to reach this court.

4. The application to inspect books is made by Mr. FONG on the basis of his directorship, and that is important because at the commencement of this hearing the matter was canvassed that he may, as a shareholder, have some rights of inspection but since the application as originally launched was simply on the basis of a directorship, when put to his election, counsel on behalf of Mr. FONG made it clear that the application was being made in Mr. FONG's capacity as a former director and not as a shareholder. Therefore, I propose in this matter simply to consider it in that light.

5. The position of a director inspecting the books of a company was considered by Mr. Justice Slade in Conway & ors v. Petronius Clothing Co. Limited & ors, which is 1978 1 Weekly Law Reports 72. As Mr. Chain on behalf of the company has pointed out, the judge appears to have had the advantage of considerable help from experienced counsel and, indeed, a number of authorities were considered. Having been taken to the judgment, it does indeed seem that the judgment was a fully considered one. Without going through it, it is, I think, of use to point out that in the conclusions as to the legal position to which Mr. Justice Slade came, starting at page 89, he pointed out, as indeed he pointed out in the course of his judgment, that:

"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."

6. I should point out here that, of course, the learned judge had already held that the right to inspect was a right conferred by common law and the legislature had implicitly recognised the existence of the right at common law.

7. Going with that, Mr. Justice Slade then went on to say that the right of a director to inspect the company's books of account must determine upon the removal of the director from office. Mr. Chain on behalf of the company put his case on the basis that he did not even have to go so far as to say that a former director could never take inspection of books. He was prepared to concede in this case for the purposes of argument that in an appropriate case the court still might consider it possible to order inspection of books, but, as he pointed out, really nothing in the evidence came close to suggesting that the applicant had good grounds for inspecting.

8. During the course of argument Mr. Lau, who had put everything, I think, that he could on behalf of the applicant, had suggested that criminal sanctions, which are contained in section 121(4), for failure to keep proper books of account, may constitute in themselves good grounds for allowing a former director to inspect the books, since, if he found something amiss, he might be able to take some steps or at least persuade current directors to take some steps to correct any errors in the way that the books and records had been kept. I agree with Mr. Chain that this seems to be rather fanciful. Certainly nothing in this case has been raised to suggest that there is any real reason for inspection on that ground.

9. The only other point that was raised by Mr. Lau was that there is a provision in the articles corresponding to section 121(3), and that is article 125. The wording is very similar. Although it was not in fact finally established, it was assumed for the purposes of argument that Table A applied. Article 125 of Table A reads:

"The books of account shall be kept with the registered office of the company or, subject to section 121(3) of the ordinance, at such other place the directors shall deem fit, and shall always be open to the inspection of the directors."

10. Again, as Mr. Chain pointed out, any right which arises from that would arise in Mr. FONG qua shareholder, and he would have had to have made his application as a shareholder. Hence, for the purposes of today's application it seems that the application would have had to have failed anyway, but, in my view, the discretionary point still arises, that Mr. FONG, having ceased to be a director, any question of the court exercising its mandatory powers to order inspection and order the company to give inspection of documents, should only be exercised in cases where that is appropriate and necessary. Unfortunately, the evidence on behalf of the applicant, it seems to me, falls short of showing that. In the circumstances, therefore, this application fails.