The individual defendants oppose the O.S. on the ground that the inspection sought by the first plaintiff is for an ulterior purpose not intended to enable him to discharge his duty as director, but is a tactical move to advance the plaintiffs’ claims against the individual defendants in Suit 112.
The decision of the High Court
The law on a director’s right to inspect documents
The learned judge, Atan Mustaffa Yussof Ahmad, first noted that the key provisions governing the right of inspection of company documents by its own directors are found in section 245 of the CA 2016 and in section 167 (“section 167”), the corresponding provision in the now repealed Companies Act 1965 which is substantially in pari materia with section 245.
Justice Atan, cited Tan Kim Hor & Ors v Tan Chong Consolidated Sdn Bhd [2009] 2 MLJ 527 (“Tan Kim Hor”) and Wuu Khek Chiang George v ECRC Land Pte Ltd [1999] 3 SLR 65 as authorities for the following legal propositions:
Inspection of documents for improper purpose and/or to the detriment of the defendants
Upon examining the affidavits filed by the company defendants, the High Court opined that the company defendants had failed to discharge their burden to show that the inspection of documents by the first plaintiff was for an ulterior motive and would cause harm to the company defendants.
First, the company defendants did not provide any specific allegations to support their claim of ulterior motive. The events they alluded to, i.e. the first plaintiff authorising a third party other than himself to attend to the inspection on short notice, the first plaintiff’s failure to attend the board meetings of the company defendants and the first plaintiff’s solicitor making unreasonable threats to the first defendant’s company secretary did not point to any potential ulterior motive on the part of the first plaintiff. Further, the alleged detriment to the company defendants was unsupported by evidence, and the complaints of the company defendants also did not point towards any detriment to the company defendants. As such, the Court concluded that the company defendants’ claim that the inspection was brought for an ulterior motive and would cause harm to the companies was unfounded.
In respect of the individual defendants, even if the O.S. was filed with the ulterior purpose of advancing Suit 112 and even if access to the company defendants’ records may assist the first plaintiff in Suit 112, it cannot be said that any detriment or prejudice would befall the company defendants. In essence, Suit 112 is a family dispute between the plaintiffs and the individual defendants, with the company defendants being nominal defendants. The consequence of the first plaintiff succeeding in Suit 112 would be a change of the shareholding, and there is no detriment to any of the company defendants.
Citing
Mirza Mohamed Tariq Beg Mirza HH Beg v Perunding Pakarmedia Sdn Bhd [2009] 10 CLJ 273 (“
Mizra Mohamed”), Justice Atan added that the existence of hostility between the first plaintiff and the individual defendants does not
ipso facto show that the exercise of the director’s right of inspection is for an improper purpose as the hostility is not directed at the company defendants. Thus, the exercise of the director’s right of inspection is not for an improper purpose.
The High Court referred to
Dato’ Seri Timor Shah Rafiq v Nautilus Tug & Towage Sdn Bhd [2018] 8 MLJ 394 (“
Dato’ Seri Timor”) and held that the law presumes that inspection by a director is made in the best interests of the company and in proper discharge of the director’s duties. The burden lies on those who oppose the director’s right to inspect to rebut the presumption by showing clear proof to satisfy the court that the grant of such right would be for the purpose which is detrimental to the interests of the company.
His Lordship added that there is no residual discretion on the part of the courts in evaluating an application for inspection. The inspection is either in the proper discharge of director’s duties or it is not. If it is the former, which is presumed in all cases, the exercise of the right of inspection must be allowed. If the latter, inspection must be denied as the court would otherwise be facilitating an abuse and breach of director’s statutory and fiduciary duties, which the courts must never countenance.
The Court further opined that even if the inspection advances the first plaintiff’s cause in Suit 112, it cannot be said that he is not exercising his duties as a director as the inspection of the documents of the company defendants will enable him to know the exact state of affairs of the said companies.
The High Court concluded that there is effectively a presumption in favour of allowing the first plaintiff as director as well as his authorised representatives to inspect and make copies of documents of the company defendants, and that the presumption had not been displaced by the defendants.
Inspection by third parties: the second plaintiff, HCS and CSH
The company defendants contended that the right of inspection of the company defendants’ documents does not extend to third parties, namely the second plaintiff, HCS and CSH
1, whilst the individual defendants argued that the request for inspection of all records of the company defendants required to be kept under the CA 2016 by several individuals, including the first plaintiff, the second plaintiff as attorney, HCS and CSH and their colleagues, was impermissible due to its width and breadth
2.
The plaintiffs citing
Bevan v Webb [1901] 2 Ch 59 (“
Bevan v Webb”) and
Edman v Ross [1922] 22 SR (NSW) 351, submitted that as the first plaintiff is a director of the company defendants, his right to inspect their documents is fundamentally a common law right, and the statutory provisions providing for a director’s right of inspection under the CA 2016 are adjunct and/or supplementary to the right of inspection under common law and do not diminish or derogate from the common law position. Applying the common law position, if a director has a right of inspection, equally his authorised agents ought to be accorded the same right.
The learned Judge agreed with the plaintiffs, citing
Mizra Mohamed and
Dato’ Seri Timor as authority that the Malaysian Courts recognise that section 167 (now section 245) is an affirmation of a director’s right already existing at common law.
His Lordship added that the CA 2016 does not explicitly remove or eliminate the common law right of inspection. If Parliament had intended to change or eliminate this right, they would have done so explicitly
3.
Given the above, the common law right of inspection for directors is not limited or restricted by the language of section 245 of the CA 2016. This means that the court has the power to enforce and apply the common law right of inspection in conjunction with the relevant statutory provisions to ensure that directors are able to carry out their duties effectively.
The High Court then considered the question as to whether the first plaintiff can exercise his right of inspection through his authorised representatives, i.e. the second plaintiff, HCS and CSH. His Lordship was of the view that this question was to be answered in the affirmative.
In
Bevan v Webb, the English Court of Appeal unanimously held that a partner can inspect the partnership books through his agents whom no reasonable objection can be taken. According to Stirling LJ, “...
whatever a person who is sui juris can do personally, he can also do through his agent ...” In the same case, Collins LJ held that the permission to inspect granted to an individual must be construed effectively to cover everything necessary to carry out the inspection regardless of whether the case is related to a company or a partnership. The permission to inspect granted to an individual also allows them to employ an agent to carry out the inspection effectively.
Justice Atan also cited
In re Credit Company [1879] 11 Ch D 256 as an example of a case where the court allowed a company’s records, i.e. the register of mortgages, to be inspected by an authorised representative of a member.
4
The learned Judge added that in the present case, the first plaintiff not only has the right to appoint an agent, but there is also a significant need for him to do so due to his illiteracy and multiple health issues. In addition, the supporting affidavit evidence indicates that the first plaintiff is unable to read or write in English or Bahasa Malaysia, is 80 years old, and is experiencing health and mobility challenges. This underscores the important consideration and objective under the common law position to prevent a right conferred from being rendered ineffectual.
The High Court also noted that there are sufficient measures in place to ensure that confidential information remains secure as each of the authorised agents of the first plaintiff had given an undertaking to the Court that any information obtained by them during the inspection will be kept confidential and will only be disclosed to the first plaintiff and not to any third party.
Accordingly, the High Court granted the orders substantially on the terms sought under the O.S., subject to the imposition of prescribed time frames within which the Records are to be made available for inspection by the Authorised Persons and the inspections are to be completed by the said persons.
Comments
As can be seen from above, the High Court dealt with the application under the O.S. in two stages. First, the learned Judge held that the first plaintiff had a right to inspect the Records as the defendants failed to provide evidence to rebut the presumption that a director is entitled to inspect a company’s documents. In coming to this decision, the High Court applied existing case law and did not break new ground.
As regards the second stage, i.e. whether a director’s right of inspection extends to third parties authorised by the director, two points are to be noted. First, that the right of a director to seek court approval to appoint an approved company auditor to inspect the accounting and other records of a company is already provided for in section 245(8) of the CA 2016 (corresponding with section 167(6) of the Companies Act 1965). Second, and more significantly, by supplementing the right under section 245 of the CA 2016 with the existing rights under the common law, the High Court in this case has made it clear that a director may appoint persons other than approved company auditors to carry out the inspection on his behalf.
Case Note by To’ Puan Janet Looi (Partner), Kok Chee Kheong (Partner) and Chong Cai Yi (Paralegal) of the Corporate Practice of Skrine.