Mukherjee Amitava v DyStar Global Holdings (Singapore) Pte Ltd and others

• Jurisdiction: Singapore
• Judge: Vinodh Coomaraswamy J
• Judgment Date: 19 December 2017
• Neutral Citation: [2017] SGHC 314
• Plaintiff Counsel: Dinesh Dhillon Singh, Lim Dao Kai, Ivan Lim, and Nigel Yeo (Allen & Gledhill LLP)
• Docket Number: Originating Summons No 863 of 2015
• Date: 19 December 2017
• Hearing Date: 23 May 2017,15 May 2017,22 May 2017,17 August 2016
• Subject Matter: Director's right to inspect company's records,Companies,Section 199 of the Companies Act (Cap 50, 2006 Rev Ed),Directors
• Published date: 22 September 2018
• Defendant Counsel: Nandakumar Ponniya Servai, Wong Tjen Wee, Lucas Lim, Liu Ze Ming and Daniel Ho (Wong & Leow LLC),See Chern Yang and Teng Po Yew (Premier Law LLC)
• Court: High Court (Singapore)
• Citation: [2017] SGHC 314
• Year: 2017

Vinodh Coomaraswamy J: Introduction

The plaintiff is a director of DyStar Global Holdings (Singapore) Pte Ltd.¹ He brings this application under s 199 of the Companies Act (Cap 50, 2006 Rev Ed) (“the Act”). The relief he seeks is an order that he be allowed to inspect and take copies of certain categories of documents enumerated in a schedule annexed to his application. His case is that: (a) all of these documents are the company’s “accounting and other records” within the meaning of s 199(1) of the Act; and (b) the company and certain of its directors have wrongfully prevented him from exercising his right as a director to inspect these documents under s 199(3) of the Act.²

The plaintiff brings this application against four defendants. The first defendant is the company itself. The other defendants are three out of the five directors of the company: Ruan Weixiang, Xu Yalin and Yao Jianfang.³

I have dismissed the plaintiff’s application. In my view, the plaintiff’s primary or dominant purpose in bringing this application is an ulterior purpose,⁴ which is to advance the interests of a minority shareholder of the company in a minority oppression suit against the company and its majority shareholder. Given that that finding goes to the root of the plaintiff’s application, reframing or narrowing the categories of documents which the plaintiff has specified in his application cannot salvage it. For the same reason, the plaintiff’s offer of an undertaking to the court to maintain the confidentiality of any documents which he inspects pursuant to a court order granted on this application cannot salvage the application.

The plaintiff has appealed against my decision. I now set out my grounds.

The factual and legal background summarised Factual background The parties’ relationship

The company is an investment holding company incorporated in Singapore. It holds shares in a number of subsidiaries operating in a number of countries. The company together with its subsidiaries are known collectively as the DyStar group.⁵ The DyStar group is in the business of providing products and services to the textile industry.

As a matter of form, the company has three shareholders: (a) Senda International Capital Limited (“Senda”) which owns about 62% of the company;⁶ (b) Well Prospering Limited (“Well Prospering”) which owns one share in the company; and (c) Kiri Industries Ltd (“Kiri Industries”) which owns about 38% of the company. As a matter of substance, however, the company is effectively owned by only two shareholders. Senda and Well Prospering are both wholly-owned subsidiaries of a company incorporated in China and listed in Shanghai known as Zhejiang Longsheng Group Co Ltd (“Longsheng”).⁷ Longsheng’s control of Senda and Well Prospering therefore gives it ultimate control of 62% of the company. Longsheng is, in effect, the company’s sole majority shareholder. That makes Kiri Industries, in effect, the company’s sole minority shareholder.

The legal relationship between the company’s shareholders began with, and is now governed by, a share subscription and shareholders’ agreement which they entered into in 2010. The shareholders’ agreement stipulates, among many other things, that the company’s board is to comprise five directors. ⁸ Three directors are to be appointed by Well Prospering, and therefore ultimately by Longsheng. Two directors are to be appointed by Kiri Industries.⁹ The plaintiff and one Manishkumar Pravinchandra Kiri are Kiri Industries’ appointees. Mr Ruan, Mr Xu, and Mr Yao are Longsheng’s appointees (“the Longsheng Directors”).¹⁰

The plaintiff applies under s 199

In July 2015, the plaintiff wrote a letter addressed to the company and to each Longsheng Director. In this letter, he asked the company’s “management [to] make available the documents and/or information as set out in the enclosed schedule … for [his] review, in advance of the next board meeting”.¹¹ The defendants did not, in terms, reject the plaintiff’s request. But neither did the defendants make the documents and information available for the plaintiff as he had requested.

The plaintiff took out this application in September 2015. The principal relief which he seeks is set out in prayer 1 of this application, ie, that:

The Plaintiff be allowed to inspect and take copies of the accounting and other records of the 1st Defendant as set out in the Schedule annexed hereto pursuant to Section 199 of the Companies Act within 3 working days of this order[.] [emphasis in original]

The schedule referred to in prayer 1 of the plaintiff’s application is virtually identical to the schedule annexed to his July 2015 letter (see [8] above). I make certain observations about the width of this schedule at [140] to [143] below.

At the highest level of generality, the single issue which I have to decide is whether I should exercise my power under s 199 of the Act to compel the defendants, or any one or more of them, to permit the plaintiff to inspect the material which he has enumerated in the schedule to his application. But to set out the issues before me with more granularity, it is first necessary to consider the statutory scheme of s 199 and the well-established common law principles which are applicable to that section.

Legal background

A director has a right at common law to “see and take copies of documents belonging to his company” (Burn v London and South Wales Coal Co and Risca Investment Co (1890) 7 TLR 118 (“Burn”) at 118) in order that “he might properly perform his duties” (Conway and Others v Petronius Clothing Co Ltd and Others [1978] 1 WLR 72 (“Conway”) at 86D-H). A director has also, in Singapore law, a statutory right to inspect the company’s “accounting and other records” under s 199(3) of the Act (Wuu Khek Chiang George v ECRC Land Pte Ltd [1999] 2 SLR(R) 352 (“Wuu”) at [25] and [31]; Hau Tau Khang v Sanur Indonesian Restaurant Pte Ltd and another [2011] 3 SLR 1128 (“Hau Tau Khang”) at [14]).

The plaintiff has invoked in this case only a director’s statutory right of inspection. I therefore need not say anything further about the common law right of inspection under Singapore law or about its scope or interaction with the statutory right.

The statutory scheme

The starting point in understanding a director’s statutory right of inspection is s 199(1) of the Act. This section creates the company’s duty to keep accounting and other records in the following terms:

Accounting records and systems of control

199.—(1) Every company shall cause to be kept such accounting and other records as will sufficiently explain the transactions and financial position of the company and enable true and fair financial statements and any documents required to be attached thereto to be prepared from time to time, and shall cause those records to be kept in such manner as to enable them to be conveniently and properly audited.

As I will show (see [159] below), the phrase “accounting and other records” is a recurring theme throughout the Act and in the case law on s 199. For simplicity, unless the context indicates otherwise, I shall use the word “records” as shorthand for the longer phrase “accounting and other records” within the meaning of s 199(1).

A director’s statutory right to inspect a company’s records arises under s 199(3). That section provides as follows: (3) The records referred to in subsection (1) shall be kept at the registered office of the company or at such other place as the directors think fit and shall at all times be open to inspection by the directors.

[emphasis added]

The curious thing about s 199(3) is that it creates a duty without specifying on whom the duty lies or how the duty is to be enforced. That is the result of the following three observations which I make about s 199(3): First, the part of s 199(3) which deals with inspection is framed in the passive voice. It therefore does not specify on whom rests the express duty to permit a director to inspect the records. By necessary implication, the duty must, at the very least, lie on the company (Wuu at [25]). It is the company which is, by s 199(1), obliged to keep the records in the first place. It is the company which has property in the records. It is the company which has physical control of the records or, at the very least, de jure and very often also de facto control of the means by which to assert physical control over the records. It is also the company in general meeting, through its supervisory powers over the company’s directors and management, which has the power to make the ultimate decision for the company as to whether to open its records for inspection under s 199(3). The question which then arises is whether s 199(3) by implication imposes an additional personal duty on each director to ensure that the records are open for inspection by the directors at all times. That is a question which I analyse, to the extent necessary to determine this application, at [99] to [123] below. Second, because s 199(3) expressly creates a duty – imposed at the very least on the company – to keep the company’s records at all times open for the directors to inspect, it must also create a right vested in each director to inspect those records. Every duty – to be a duty in the true sense of the word – must have a correlative right. Looked at in that way, s 199(3) creates by necessary implication a correlative right vested in a director. Finally, s 199(3) – having conferred a right on a director to inspect a company’s records – does not set out any means by which a director aggrieved by being refused inspection of a company’s records may enforce that right. In particular, s 199(3) does not in terms empower a court to make an order compelling a company to permit an aggrieved director to inspect its records. That omission is particularly stark when s 199(3) is compared to s 199(5).

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