High Court: Directors may inspect company’s records through agents under the common law

One of the questions that arose for decision by the High Court in Looh Keo & Anor v Prospell Enterprise Sdn Bhd & Ors [2023] 5 CLJ 601 was whether a director may inspect a company’s records through his agents.
 
Brief facts
 
The first plaintiff has nine children from three marriages. He was 80 years old when the application in this case was filed in May 2022 and has various health issues, including the need for routine dialysis and a history of open-heart surgery. The first plaintiff is illiterate in English.
 
The first plaintiff appointed the second plaintiff, his eldest son from his first marriage, as his attorney via a power of attorney dated 2 April 2022.
 
The first to sixth defendants (“the company defendants”) are private limited companies which the first plaintiff founded or acquired. The first plaintiff is a director of all the company defendants and is a shareholder of the first and third defendants. The seventh to 11th defendants (“the individual defendants”) are the children of the first plaintiff from his second and third wives who hold shares and have directorships in the company defendants in various combinations.
 
On 18 March 2022, the first plaintiff filed suit WA-22NCC-112-03-2022 (“Suit 112”) to recover the shares worth about RM400 million in the company defendants held in the names of his children and brother on grounds that the said shares are held by his children and brother on trust for and on his behalf. The first plaintiff also sought an account. The existence of the trust was denied by the individual defendants.
 
As a result of the first plaintiff’s request to inspect the records of the company defendants, including their secretarial and financial records, being denied, the plaintiffs filed an application under O.S. WA-24NCC-657-05-2022 (“the O.S.”) seeking inspection of the company defendants’ register, minutes book, accounting, and other documents/ records.
 
Main reliefs sought
 
The main reliefs sought by the plaintiffs in the O.S. are that all records of the company defendants, including the register, minutes book, accounting and other documents/records required to be kept pursuant to the Companies Act 2016 (“CA 2016”) whether in physical or electronic form (“Records”) be immediately and at all times: 
  1. open to inspection by the first plaintiff, the second plaintiff (as the first plaintiff’s attorney), Hee Cher Sun (“HCS”) (an advocate and solicitor representing the first plaintiff), HCS’s colleagues from her law firm, Chuah Soo Huat (“CSH”) (an approved company auditor representing the first plaintiff) and/or CSH’s colleagues from his audit firm (collectively the “Authorised Persons”); and 

  2. available for the Authorised Persons to make copies of and/or take extracts from the Records of each of the company defendants upon the undertaking in writing by the second plaintiff, HCS and CSH to the Court that the information acquired by them and/or their colleagues from their respective firms during the inspection shall not be disclosed by them and/or their colleagues except to the first plaintiff. 
The defendants’ grounds of opposition
 
The company defendants opposed the O.S. on the following grounds: 
  1. the first plaintiff, as a director of the company defendants, has the right to inspect and copy the corporate information and documents of the company defendants but not the other parties named by the plaintiffs; 

  2. the second plaintiff is improperly joined as a plaintiff and has no right to bring the action; 

  3. the first plaintiff breached his fiduciary duty by authorising third parties to access the documents for an improper purpose and not in the best interests of the company defendants; 

  4. the first plaintiff had neglected to attend board meetings and his unprofessional conduct resulted in the resignation of the company secretary; and 

  5. the first plaintiff’s conduct is detrimental to the company defendants. 
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: 
  1. the right of a company director to inspect its accounting and other records is an absolute right at common law recognised by legislation. This right is considered absolute so long as it is exercised for the proper performance of a director’s duties and not to cause detriment to the company. The court has no residual discretion to refuse inspection, and can only bar a director from exercising the right if the director intends to use the information for ulterior purposes that would harm the company. This right exists to enable directors to perform their duties and will be lost if it is exercised to advance ulterior motives or injure the company; and 

  2. the burden of proof lies on the person asserting that a director’s right to inspect is being exercised for an improper purpose. A director does not need to show a specific reason for the inspection request, as it is typically assumed to be for proper purposes. It is the responsibility of those opposing the director’s right to provide clear proof and convince the court that granting the right of inspection would be detrimental to the company’s interests. 
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 CSH1, 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 breadth2.
 
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 explicitly3.
 
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.
 
 

1 The 11 grounds raised by the company defendants in support of this contention are set out in paragraph 49 of the Judgment.
2 The four grounds raised by the individual defendants in support of this contention are set out in paragraph 50 of the Judgment.
3 For example, the elimination of the common law derivative action is expressly provided in section 347(3) of the CA 2016.
4 Section 362(4) of the CA 2016 confers on any creditor or member of a company or any other person the right to inspect a company’s register of charges upon payment of the prescribed fee.

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