Burry & Knight Ltd v Knight
| Jurisdiction | England & Wales |
| Judge | Lady Justice Arden,Lord Justice Briggs,Lord Justice Christopher Clarke |
| Judgment Date | 14 May 2014 |
| Neutral Citation | [2014] EWCA Civ 604 |
| Docket Number | Case No: A3/2013/1426 |
| Court | Court of Appeal (Civil Division) |
| Date | 14 May 2014 |
[2014] EWCA Civ 604
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
COMPANIES COURT
Mr Registrar Baister
CH20130184
Royal Courts of Justice
Strand, London, WC2A 2LL
Lady Justice Arden
Lord Justice Briggs
and
Lord Justice Christopher Clarke
Case No: A3/2013/1426
Ms Lexa Hilliard QC + Ms Sarah Clarke (instructed by Eversheds LLP) for the Appellant
Ms Hilary Stonefrost (instructed by Rawlins Davy) for the Respondent
Hearing date: 23 January 2014
INTRODUCTION
The principal issue on this appeal concerns section 117(3) of the Companies Act 2006 ("the CA 2006") ("the no-access provision"). This enables the court in certain circumstances to make an order ("a no access order") directing a company not to comply with a request for inspection of its register of members. In this case, the request for access was made by a member of the respondent companies, namely the appellant, Dr Martin Knight ("Dr Knight"). Mr Registrar Baister, sitting in the Chancery Division, Companies Court, found that Dr Knight had made this request for a mixture of proper and improper purposes. He made a no-access order on terms. In consequence, he made the following orders:
(A) he directed that, on terms as to undertakings by the respondent companies (respectively "B&K" and "Hoburne") to circulate a letter from Dr Knight about the provisions of the articles as to share valuation on transfer ("the share valuation question"), the respondent companies need not comply with the request by Dr Knight for a copy of their registers of members; and
(B) he ordered Dr Knight to pay the respondents' costs on an indemnity basis.
Dr Knight now appeals against those orders. Parts (A) and (B) of this judgment deal with Dr Knight's appeal against the orders (A) and (B) above respectively. There is no cross-appeal as to the Registrar's finding that the purpose of writing to shareholders about share valuation ("the share valuation purpose") was a proper purpose.
For the reasons given below, I conclude as follows:
i) Save as regards the share valuation question, Dr Knight's proposed communication was of no real value to his fellow shareholders. Alternatively Dr Knight's real purpose (with that exception) was to harass other shareholders, as found by the Registrar. On either basis, the purpose is not a proper one within the no-access provision.
ii) Insofar as Dr Knight sought access for the unchallenged proper purpose of the share valuation question, the terms contained in the Registrar's order effectively gave him that access since the respondent companies undertook to circulate to the shareholders a letter from him. The Registrar was entitled to make an order in that form.
iii) The Registrar was also entitled to make an order removing any obligation on the companies to comply with any similar future request for the same improper purpose.
iv) However, I would allow the appeal as to indemnity costs on the basis that Dr Knight's conduct after the deciding to withdraw his request, on which the Registrar relied, did not reach the threshold of unreasonableness necessary for indemnity costs.
The no-access provision is new and this is the first opportunity which this court has had to consider when the court should prevent access to a company's register of members. By "access" I mean a request for either inspection or a copy. Under the CA 2006, a person may make either request.
Before turning to Parts (A) and (B) of this judgment I shall briefly outline the relevant statutory provisions, including the new no-access provision. As the respondents are companies limited by shares, I will refer to the register of members as the "share register".
ACCESS TO THE SHARE REGISTER
General duties and enactment of no-access provision
The statutory provisions dealing with inspection of share registers are now to be found in sections 113 to 120 of the Companies Act 2006 ("CA 2006"). Sections 116, 117, 119 and 120 are new. The other sections are derived from previous statutory provisions, some of which date from the Companies Act 1862.
The Companies Act 2006 ("the CA 2006") in general requires every company to keep a register of its members, showing (in the case of a company having a share capital) for each member his name and address, the date he was registered as a member or ceased to be a member and the number and class of his shares and the amount paid up on those shares.
Persons other than the company may have a legitimate interest in accessing the information in the register. A member may, for instance, need the information in the register because he wants to obtain support from other members to requisition a general meeting of the company. A member of the public may need the information in order to investigate whether the board has issued shares improperly, for example by issuing them to their associates.
Accordingly, statute confers rights to inspect and take copies of the information in the register of members. Under the Companies Act 1985, section 356, anyone could obtain access to the register and a copy of it. However, there was evidence that some people were abusing this right and seeking the information in order to harass the members.
So since 2006 these rights have been qualified. In the CA 2006, Parliament has sought to provide some protection for members against improper requests by enabling the company to obtain a court order preventing access if the request fails a "proper purpose" test. Accordingly under the CA 2006:
• the person who wants access to the register must make a request for access which states the purpose of the request (section 116);
• the company may within 5 days apply to the court for an order relieving it from any obligation to comply with the request, and
• the court has no option: it must make this order if it is satisfied that the request is not made for a proper purpose (section 118).
This is a major change in the law. Formerly, the law regarded the right of a shareholder to access the share register as an incident of his property right in his share, and did not inquire into his motives for wanting access: see Davies v Gas Light and Coke Co [1909] 1 Ch 248.
Section 119 creates two new offences: (1) to include in a request under section 116 a statement that is materially misleading, false or deceptive; and (2) to disclose information obtained pursuant to such a request to a person when he knows or ought to suspect that the information will be used for an improper purpose.
Section 120 deals with notification of the last date on which alterations were made to the share register, and alterations not reflected in the index of members. Section 120 is not material to this case.
The material statutory provisions are set out in the Annex to this judgment.
Policy reason for the no-access provision
I start with the mischief to which section 117(3) of the CA 2006 was directed. Ms Lexa Hilliard QC, for Dr Knight, pointed out that Margaret Hodge MP, Minister in charge of the Bill at that stage, spoke during the committee stage of the Companies Bill leading to the CA 2006 of abuse of the right to inspect the share register.
These abuses were the subject of recommendations by the Steering Group of the Department of Trade and Industry's Company Law Review ("the CLRSG"), of which I was a member. Section 117 was enacted following acceptance by the Department of those recommendations. In its Modern Company Law For A Competitive Economy: Final Report (www.dti.gov.uk/cld/review.htm), the CLRSG pointed out that the right of access to share registers was abused by, for instance, bounty hunters or people who sought to use the names and addresses for advertising purposes.
The principal recommendation made by the CLRSG on this point was that the Companies Act should restrict access to the share register. The CLRSG went on to recommend an approach not wholly dissimilar to the approach in the Australian Corporations Law. Under that Law, the applicant has to make his application in a prescribed form, and must set out in it each of the purposes for which he seeks access (section 117(3A) (c)). None of the purposes must be a proscribed purpose, and the proscribed purposes include such matters as requesting a donation from a member. The CLRSG recommended that purposes of access be limited to some (different) prescribed purposes (see Final Report, paragraph 11.44). However, Parliament has not identified any purposes as improper. Thus it has left the words "proper purpose" at large for the courts to work out in the conventional way, using the context and on a case by case basis. I therefore agree with the Registrar that Parliament intended to leave the meaning of "proper purpose" open for the courts to determine, and not to limit or define it.
Meaning of "proper purpose"
The Registrar held, and I agree, that the words "proper purpose" should be given their "ordinary, natural meaning." He held that a proper purpose ought generally, in the case of a member, to relate to the member's interest in that capacity and to the exercise of shareholder rights. I agree with this approach, provided the last "and" is read as "and/or", (as is clear from a later reference in the Registrar's judgment).
It is not possible to provide an exhaustive definition of what is a proper purpose. The Registrar held that a court might have regard to a guidance note, issued by the Institute of Chartered Secretaries and Administrators...
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