Oxford Legal Group Limited v. Sibbasbridge Services Ltd

The Court of Appeal upheld the judge's refusal to grant summary judgment for an order permitting inspection of company accounting records. The court applied established principles that a director's right to inspect company books exists to enable performance of his duties (recognised at common law and reflected in provisions such as sections 221 and 222 of the Companies Act 1985) and that the court will not assist where inspection is sought for an improper purpose. Because there was a serious issue to be tried whether the claimant director (Oxford Legal Group) was seeking inspection to advance collateral objectives connected to parallel proceedings under section 459 of the 1985 Act (an unfair‑prejudice/share‑purchase petition) the judge was entitled to refuse summary judgment.

Background and parties: The appellant, Oxford Legal Group Limited (OLG), sought an order under section 222 of the Companies Act 1985 to inspect the accounting records of Sibbasbridge Services Plc (SBS). The respondents were SBS and Mr Christian Hoyer Millar. OLG was alleged to be a nominee/vehicle for Mr Kenneth Brooks and was a director of SBS.

Procedural posture: Proceedings were commenced 6 March 2007. OLG sought summary judgment on 23 April 2007. The defendants sought to strike out and to transfer the claim to the Companies Court to be heard with an existing petition under section 459 of the Companies Act 1985 (petition by Mr Hoyer Millar). Mr Justice Kitchin by order dated 9 October 2007 dismissed summary judgment and strike‑out applications but ordered transfer to the Companies Court. OLG appealed to the Court of Appeal; permission to appeal was granted by Lord Justice Rimer.

Related petition: The section 459 petition (now section 994 of the Companies Act 2006) concerned alleged unfair prejudice and led to a Registrar’s directions order of 14 June 2007 requiring the sale of certain shareholdings and fixing valuation by reference to net asset value as at 30 September 2006. The Registrar’s order and subsequent appeal to Mr Justice Norris formed part of the factual matrix.

Issues framed:

• Whether a director’s right to inspect company accounting records can be refused or withheld where inspection is sought for an improper collateral purpose rather than to enable the director to discharge his duties.
• Whether the judge was correct to refuse summary judgment in circumstances where the respondents asserted a serious issue that inspection was sought for such an improper purpose.

Court’s reasoning: The court reviewed authority on the nature and limits of a director’s right to inspect company records (including Conway v Petronius, Edman v Ross and other overseas authorities) and accepted that the right exists to enable performance of a director’s duties and that it will not be enforced where a director seeks inspection for an improper purpose (for example to injure the company or to advance collateral objectives). The court held that if it is clearly shown that inspection is sought for an improper purpose the court cannot assist; conversely, in the absence of clear proof, the right should not be rendered nugatory by protracted inquiry. Applying those principles, the judge was entitled to conclude that a real and serious issue existed whether OLG (taken with BBG and Saccary as linked to Mr Brooks) sought inspection to assist collateral litigation in the section 459 petition. Given that issue, summary judgment was inappropriate.

Relief sought: OLG sought summary judgment ordering inspection under section 222. The respondents sought strike out and transfer; the judge transferred the claim to the Companies Court and refused summary judgment. The appeal against that refusal was dismissed.

Appeal dismissed. The Court of Appeal held that the judge correctly applied the legal principle that a director’s right to inspect company accounting records exists to enable the discharge of his duties and is not to be used for other improper purposes; because there was a serious issue to be tried whether OLG sought inspection to further collateral objectives in related section 459 proceedings, summary judgment ordering inspection was inappropriate and the judge was entitled to refuse it.

Appeal from an order of Mr Justice Kitchin (High Court of Justice, Chancery Division) dated 9 October 2007 (HC07C00558) refusing summary judgment and striking out but transferring the claim to the Companies Court. Permission to appeal was granted by Lord Justice Rimer on 24 January 2008. The factual background includes a directions order of Mr Registrar Rawson dated 14 June 2007 in the section 459 petition and an appeal to Mr Justice Norris ([2008] EWHC 265 (Ch)).