Burry & Knight Ltd & Anor v Knight

A shareholder’s request to inspect or copy a company’s register of members must serve a purpose relevant to members’ interests or the exercise of shareholder rights. The company must prove an improper purpose on the balance of probabilities. Given the strong policies of shareholder democracy, transparency and good governance, the court should restrict shareholder access sparingly.

Where a request has several substantial purposes, any improper purpose requires a no-access direction under section 117(3) of the Companies Act 2006. The court may nevertheless preserve communication for a proper purpose by imposing terms, accepting an undertaking restricting use, or arranging for the company to forward correspondence. Information which is plainly valueless to shareholders, or communication intended to harass them, does not constitute a proper purpose.

A shareholder in two family companies requested copies of their registers of members. He wished to study the shareholdings, communicate longstanding allegations about directors’ remuneration and benefits in kind, and raise a question about the valuation of shares on transfer.

The Registrar found the share-valuation purpose proper but the other purposes improper. He directed under section 117(3) of the Companies Act 2006 that the companies need not provide the registers, subject to undertakings that they would circulate the shareholder’s valuation letter. He also restricted similar future requests and awarded indemnity costs against the shareholder.

The shareholder appealed. The central issues were the meaning of “proper purpose”, the treatment of mixed proper and improper purposes, the permissible form of a no-access order, and whether indemnity costs were justified.

1. The appeal against the no-access order was dismissed. A member’s purpose should generally relate to the member’s interests in that capacity, the exercise of shareholder rights, or both. A proposed communication must be relevant in some way to members’ interests as members. The court should not ordinarily assess its commercial merits, because shareholders should decide its value. It may intervene where the information is plainly valueless, already known or nonsensical.

2. The company bears the burden under section 117(3) of the Companies Act 2006 of proving an improper purpose on the balance of probabilities. The statutory scheme strongly favours shareholder democracy, transparency and good corporate governance. A court should therefore restrict a shareholder’s communication with fellow shareholders sparingly and with circumspection. Nonetheless, the stale allegations in this case could provide no possible benefit to the companies, their shareholders or the appellant in his capacity as shareholder. Their proposed circulation was not a proper purpose. The Registrar was also entitled to infer from the documentary history that the object was harassment or pursuit of an obsessive family dispute.

3. Applications should, where possible, be determined summarily. A court may find purpose or motivation without cross-examination where the documents and other circumstances make that fair. A trial, preferably speedy, may exceptionally be required. Arden, Briggs and Christopher Clarke LJJ agreed that the documentary material permitted the Registrar’s conclusion here.

4. Where a request has several substantial purposes, section 117(3) requires a no-access direction if any one is improper. A proper purpose is not rendered unusable, however. Applying Pelling v Family Need Fathers Ltd [2002] BCLC 645, the court may permit the company to act as a postbox, impose terms governing confidentiality and use, or accept an undertaking from the requester. Such an arrangement preserves communication for the proper purpose while preventing misuse. The Registrar was entitled to require circulation of the share-valuation letter through the companies.

5. A section 117(4) order may address future requests only where their purpose is similar to the improper purpose already found. Future orders should identify that purpose in a recital. The omission of such a recital here did not invalidate the Registrar’s discretionary order.

6. The appeal against indemnity costs was allowed. Indemnity costs require conduct outside the norm, including impropriety or unreasonableness to a high degree. After the request was withdrawn, the companies sought terms extending beyond what the shareholder had offered or was bound to accept. His defence and settlement conduct did not meet the required threshold.

1. Court of Appeal (Civil Division): By [2014] EWCA Civ 604, unanimously dismissed the appeal against the no-access and future-request orders, but allowed the appeal against the award of indemnity costs.
2. High Court, Chancery Division, Companies Court: The Registrar directed that the companies need not comply with the request for copies of their registers, subject to undertakings facilitating circulation of a letter about share valuation. He restricted similar future requests and ordered the requester to pay indemnity costs. No neutral citation is stated.