Lui Yau Tak (雷有得) & Anor v Melofield Nursery and Landscape Contractor Ltd (經緯園藝有限公司) [2025] 3 HKC 721, [2025] HKCFI 1037 (Lydia Leung, Belinda Law)

Lydia Leung and Belinda Law represented the plaintiffs in Lui Yau Tak (雷有得) & Anor v Melofield Nursery and Landscape Contractor Ltd (經緯園藝有限公司) [2025] 3 HKC 721, [2025] HKCFI 1037.

The 1st plaintiff, then director of the defendant company, and the 2nd plaintiff, a shareholder of the company (collectively the plaintiffs), sought orders for the company to provide to the plaintiffs its accounting records for their inspection pursuant to ss 373-378 and 740 of the Companies Ordinance (Cap 622). The 2nd plaintiff had entered into a shareholders’ agreement with other shareholders of the company (SHA) by which he acquired 30% shareholding in the company. The SHA stipulated various protections, rights of participation and access to information in favour of the 2nd plaintiff. The plaintiffs contended that the application was made in good faith and for a proper purpose, based on their concerns as to the financial health of the company which affected their economic interests. The company contended that the application was not made bona fide, with the express intention of seeking discovery of documents of the company in place of the normal discovery process, and the scope of the documents sought under the schedule was too extensive and wide.

Held, granting the application with modifications to the scope of inspection:

(1) A director was in general entitled both under common law and statute to seek inspection of accounting documents and records of a company. However, such application would be dismissed if by the time of the hearing the applicant was no longer a director of the company, even if he was a director at the time of the application. Wong Kar Gee Mimi v Hung Kin Sang Raymond [2011] 5 HKLRD 241; [2011] 5 HKC 361; Re Opes Asia Development Ltd [2012] HKCU 1239; (HCMP 447/2012, Harris J, 17 May 2012, unreported); Re China Ease Investments Ltd [2018] HKCLC 175 ; [2018] HKCFI 1498; [2018] HKCU 2317; and Wong Sau Man Samuel v Wong Kan Po Wilson & Ors [2017] 4 HKLRD 542; [2017] HKCU 2052 followed (paras 28-29).

(2) The good faith and proper purpose requirements under s 740 of the Companies Ordinance (Cap 622) were two separate and independent tests, the former being subjective and the latter being objective. Wong Kar Gee Mimi v Hung Kin Sang Raymond (above) followed (para 32).

(3) ‘Proper purpose’ required some reasonable relationship to the interests of the applicant qua shareholder. Once the primary or dominant purpose was deemed to be proper, any further or secondary purpose was irrelevant. Protection of the applicant’s economic interest by finding out potential impropriety, and the desire to assess the value of an applicant’s shareholding for prospective disposal of his investment were proper purposes. Nevertheless, such right of inspection should not be used as a fishing expedition or a substitute for a pre-action discovery exercise. Leung Chung Pun v Masterwise International Ltd [2014] 1 HKLRD 1129; [2014] HKCU 172; Wong Kar Gee Mimi v Hung Kin Sang Raymond (above); Wong Sau Man Samuel v Wong Kan Po Wilson & Ors (above) followed; Smartec Capital Pty Ltd v Centro Properties Ltd & Anor (2011) 83 ACSR 461; [2011] NSWSC 495; and Lehman & Co Management Ltd v Efficient Ltd [2011] 6 HKC 254; [2011] 5 HKLRD 668 considered (paras 33-35, 37).

(4) If the application was for the purpose of enabling the applicant to carry out investigation into alleged misconduct or maladministration, the court should assess whether a proper case for investigation was made out, considering the company’s explanations offered. The court should then strike a proper balance between (i) requiring the company to be transparent and (ii) not permitting the statutory jurisdiction to be used to challenge managerial or commercial decisions made by the board. Leung Chung Pun v Masterwise International Ltd (above) followed (para 38).

(5) The rights under a shareholders’ agreement and the rights under company law relate to two different planes; the rights under such contract were separate and distinct from statutory provisions under the company law. One could not transplant or superimpose provisions on right to access in a shareholders’ agreement to an application under s 740 as if those provisions could replace the requisite statutory requirements. A shareholders’ agreement nevertheless formed part of the relevant factual matrix and context in evaluating the statutory requirements. If there was a need to access to relevant documents to perform specific rights provided in the shareholders’ agreement, the substantive contents of such rights as relevant context should be considered in evaluating the statutory requirements. Meanwhile, the provision of the right or access or indirect access in the shareholders’ agreement was a relevant context pertaining to such shareholder’s level of participation in the company’s business and the right to information should commensurate with the same. Simba Global Pty Ltd v IFOTA Pty Ltd [2019] FCA 1020; BTY v BUA [2019] 3 SLR 786; [2018] SGHC 213; Yara Australia Pty Ltd v Burrup Holdings Ltd [2010] FCA 1273; ACD Tridon Inc v Tridon Australia Pty Ltd [2002] NSWSC 896; Dickson Holdings Enterprise Co Ltd v Moravia CV & Ors [2019] 3 HKLRD 210; [2019] HKCFI 1424; [2019] HKCU 2020; Tsai Shao Chung v Asia Television Ltd [2012] 6 HKC 22 ; [2012] 4 HKLRD 52; Yeung Chun Kei v 2A Ltd [2024] HKCFI 3177; [2024] HKCU 4795; and Sea Heritage Holdings Ltd v Nice Wave International Ltd [2023] HKCFI 3076; [2023] HKCU 4980 considered (paras 48-50, 53-57).

(6) On the facts, the consensus among shareholders under the SHA was that the 2nd plaintiff should enjoy a high level of participation in the management of the company and a heightened right to information commensurate with the same. There were sufficient factors and evidence to suggest the 2nd plaintiff’s request for inspection was made in good faith and for proper purpose (paras 62-63, 65-70, 72-76, 79-81).

(7) The purpose of seeking discovery or to assist the plaintiffs in their preparation of defence and counterclaim in related proceedings was not necessarily mutually exclusive with other proper purposes under s 740. If the primary or dominant purpose was proper, any further secondary purpose was irrelevant. Lehman & Co Management Ltd v Efficient Ltd (above); and Wong Kar Gee Mimi v Hung Kin Sang Raymond (above); Wong Sau Man Samuel v Wong Kan Po Wilson & Ors (above) applied (para 85).

(8) The scope of inspection sought by Ps in the schedule was too wide. Various modifications were made, disallowing certain categories or sub-categories (paras 95, 100, 103, 106, 108, 111, 120-121).

[The above is excerpted from the headnote to the report in HKC.]