Oxford Legal Group Ltd v Sibbasbridge Services Plc & Anor

A director’s right to inspect company books exists to enable the director to perform duties owed to the company. The court will presume that the right is exercised for that purpose unless the opposing party establishes clearly that the director seeks inspection for an improper collateral purpose.

Where that is established, the court cannot assist the director to use the right for a purpose for which it was not conferred. Improper purpose is not confined to an intended injury to the company. On an application for summary judgment, a serious issue as to collateral purpose prevents judgment under the Civil Procedure Rules 1998.

OLG, a director of Sibbasbridge Services Plc, sought inspection of the company’s accounting records under section 222 of the Companies Act 1985. The respondents contended that OLG, which was associated with Mr Brooks and companies selling their shares in Sibbasbridge to Mr Hoyer Millar, sought the documents to obtain an advantage in parallel unfair-prejudice proceedings.

Kitchin J refused OLG summary judgment, refused to strike out the claim, and transferred it to the Companies Court to be heard with the petition: [2007] EWHC 2265 (Ch). OLG appealed. The central issue was whether a director may enforce inspection where there was a serious issue that it was sought for a collateral purpose rather than to perform directorial duties.

1. Appeal dismissed unanimously. Sir John Chadwick, with whom Toulson and Hughes LJJ agreed, held that a director’s right to inspect company books is conferred to enable performance of directorial duties and for the company’s benefit. The court assumes proper use unless those opposing inspection establish clear proof of an improper purpose.

2. The court rejected the submission that inspection can be refused only where the director intends materially to injure the company. A director who seeks inspection for any purpose foreign to the performance of directorial duties seeks to use the right improperly. In that event the court has no power to assist; this follows from the nature and limits of the right, rather than a residual discretion to refuse relief. The court applied and clarified the principles discussed in [1978] 1 WLR 72.

3. It was unnecessary to decide conclusively whether the right is common-law or statutory. The relevant provisions of the Companies Act 1985 had not altered its purpose or scope. The court preferred the view that the legislation recognised, rather than created, the pre-existing right.

4. OLG’s claim was an application for summary judgment, not a special category of inspection application. Under rule 24.3 of the Civil Procedure Rules 1998, the respondents needed only a real prospect of establishing an improper purpose. The judge was entitled to find a serious issue because OLG had received, or been offered, documents needed for the accounts; it was soon to cease as director; and the wider inspection appeared designed to assist Mr Brooks in the parallel petition.

5. The court added, obiter, that an interim application may require a balance-of-convenience assessment. The risk that inspection would damage the company may then be decisive. No interim relief had been sought here.

• Court of Appeal (Civil Division) Dismissed OLG’s appeal from the refusal of summary judgment and upheld the transfer of the claim to be heard with the related petition: [2008] EWCA Civ 387 .
• High Court of Justice, Chancery Division (Kitchin J) Refused OLG summary judgment, refused the respondents’ strike-out application, and transferred the claim to the Companies Court: [2007] EWHC 2265 (Ch) .