Director’s right of Access to Company’s Records

A Commentary on Dato’ Tan Kim Hor & 3 Others v Tan Chong Consolidated Sdn. Bhd. by Samuel Loh

 

 

The case of Dato’ Tan Kim Hor & 3 Others v Tan Chong Consolidated Sdn. Bhd. (Civil Appeal No. W-02-735-2001) revolves around a director’s right to inspect a company's accounting and other records (collectively "records").

 

 

THE FACTS

The Plaintiffs are directors of Defendant’s Board of Directors. The Plaintiffs sought an order from the High Court to inspect the records of the Defendant through a qualified auditor pursuant to Section 167(6) of the Companies Act 1965 (“Act”). The Defendant objected to the Plaintiffs’ application.

 

The High Court upheld the Defendant’s objection and dismissed the Plaintiffs’ application. The Plaintiffs appealed to the Court of Appeal ("CA") against this decision.

 

 

THE RIGHT OF INSPECTION

Section 167 of the Act entrenches the common law right of a director to inspect the records of a company in which he serves as a director. Section 167(3) requires such records to be open to inspection by the directors at all times.

 

Further, Section 167(6) empowers the Court to order that the records be open to inspection by an approved company auditor acting for a director upon the auditor giving a written undertaking to the Court that the information acquired by him during the inspection shall not be disclosed by him except to that director.

 

The CA adopted the following principles laid down by the Singapore Court of Appeal in Wuu Khek Chiang George v ECRC Land Pte Ltd (1999) 3 SLR 65:

 

1. The right of a director to inspect the records of a company is a concomitant of the fiduciary duties of good faith, care, skill and diligence which he owes to the company. It is a mandatory obligation of the company to allow inspection by its directors;

2. Such right is “absolute” so long as it is exercised for the proper performance of the director's duties to the company. A director is prima facie entitled to inspection and is not required to demonstrate any particular ground or basis for such inspection;

3. The right of a director to inspect the records of the company is corollary of his office as a director and enables him to perform his duties as such;

4. There is no residual discretion in the Court to refuse inspection. Where a Court bars a director from exercising his right of inspection, it is not exercising a residual discretion but is satisfied on the basis of evidence that the director intends to use the information obtained for ulterior purposes, such as to cause detriment to the company and that the director is abusing the confidence reposed in him.

 

 

BURDEN OF PROOF

In the proceedings before the High Court, the learned Judge inter alia ruled that:

 

(a) a company which resists a director's right to inspect the records of the company bears the burden of proving that the right is being exercised for an improper purpose or a purpose detrimental to the company; and

(b) a director does not bear any burden to show reason for his request to inspect.

 

The High Court Judge held that the Defendant had failed to satisfy the Court that there was any “real ground” or “clear proof” that the Plaintiffs' rights would be abused and that substantial harm would be caused.

 

Although the CA acknowledged that the rulings by the High Court Judge on the issues relating to the burden of proof under Section 167(3) of the Act did not form part of the appeal before the CA, the CA nevertheless agreed with the rulings by the High Court Judge.

 

While the CA's observations on the issue of burden of proof are merely obiter dicta, the legal position on this issue appears to be settled law as similar views have been adopted in several other High Court cases, namely Paul Nicholson v Faber Medi-Serve Sdn Bhd & Ors [2002] 1 MLJ 355, Loh Yoon Sang v Ivory Pearl Sdn Bhd [2003] 7 CLJ 405 and Dato' Ting Check Si v Sanyan Wood Industries Sdn Bhd [2007] 1 LNS 280.

 

 

THE UNDERTAKING

In the appeal before the CA, the Defendant contended that the letter of undertaking issued by the auditor pursuant to Section 167(6) of the Act was defective on the following grounds :

 

(1) it was not addressed to the Court; and

(2) the auditor had extended the class of persons to whom the information was to be disclosed beyond the Plaintiffs, namely the appointed servants or agents of the Plaintiffs.

 

Notwithstanding that the letter of undertaking was not addressed to the Court, the CA was satisfied that the inclusion of the document as one of the exhibits to the cause papers filed by the Plaintiffs was sufficient to satisfy the requirements of Section 167(6) of the Act.

 

The CA held that Section 167(6) of the Act should be given a purposive interpretation. It also observed that Section 167(6) did not prescribe a statutory form of undertaking. The CA, relying on Section 71 of the Interpretations Act 1948 and 1967, further opined that even if a form was prescribed, slight deviations are permissible.

 

The CA further held that the letter of undertaking was clear and unambiguous as it was given for the purposes of carrying out an inspection pursuant to Section 167(6) of the Act.

 

As for the Defendant's contention that the auditor had extended the class of persons (other than the Plaintiffs) who could receive the information, the CA was of the view that those words were included innocuously and done ex abundante cautela. The Court held that the inclusion of the words did not transform the undertaking into a conditional or defective undertaking and ordered the relevant words to be deleted from the undertaking.

 

For the reasons stated above, the CA allowed the Plaintiffs’ appeal.

 

 

CONCLUSIONS

The Dato' Tan Kim Hor Case is noteworthy as it is the first reported decision of the CA on a letter of undertaking issued by an auditor under Section 167(6) of the Act. The CA has elected to give a purposive and holistic interpretation to that provision to ensure that a director's right of inspection is not impeded on minor or technical non-compliance. As such, this decision is laudable and welcomed.

 

 

SAMUEL LOH KHIAN SEAH ( This e-mail address is being protected from spambots. You need JavaScript enabled to view it )

 

 
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