Oxford Legal Group Ltd v Sibbasbridge Services Plc & Anor

The claimant, The Oxford Legal Group Ltd (“OLG”), is a company incorporated in the United Kingdom. Its business is the provision of corporate services. OLG is one of two directors of the first defendant, Sibbasbridge Services Plc (“SBS”). The other director is Mr Hoyer Millar, the second defendant. Mr Hoyer Millar has been a director of SBS since 6 May 1997 and OLG has been a director since 1 June 1998. Before that, the other director with Mr Hoyer Millar was Mr Kenneth Brooks.

In this action OLG seeks an order entitling it to inspect the accounting records of SBS. There is no doubt that OLG has requested SBS to make available those records and that, save for certain exceptions, SBS has refused and continues to refuse to do so. OLG contends that this refusal is without proper cause.

The defendants submit the matter is rather more complicated than the claim would suggest. They say that SBS has at all times been a company owned as to 50% by Mr Hoyer Millar and as to 50% by Mr Brooks, either directly or through his nominees. The first of those nominees is a company called Saccary Ltd (“Saccary”), which is incorporated in the Isle of Man and was previously called Valemarket Ltd. It has been the registered holder of 50,000 shares in SBS since 1998 when Mr Brooks transferred those shares to it. The second is a company called Battlebridge Group Ltd (“BBG”) which is now the holder of one issued share in SBS.

As for OLG, this a wholly owned subsidiary of BBG and that the defendants allege it is a nominee and creature of Mr Brooks and is under his control and direction. It became a director of SBS when, so the defendants say, Mr Brooks arranged for it to take over his seat on the board as a front for him. A Mr Livingston-Campbell (also known as Mr Livingston-Raper until October 2006 at which time he changed his name on marriage) is a director of OLG. The defendants say that he works in the same office as Mr Brooks and acts under his direction and control.

In short, therefore, the defendants say that Mr Brooks has, either himself or through his nominees, at all times been a director of and 50% shareholder in SBS.

Since about 2005, Mr Hoyer Millar and Mr Brooks have been in dispute in relation to the affairs of SBS. The company has been in a state of deadlock which has led, for example, to difficulties in the finalisation of its annual accounts. As a result, in about July 2005, Mr Hoyer Millar presented a petition (“the petition”) in the Companies Court of the Chancery Division under section 459 of the Companies Act 1985 (“the Act”) on the ground that the company’s affairs were being or had been conducted in a manner which was unfairly prejudicial to the interests of its members. The respondents to the petition are BBG, Saccary, SBS and Mr Brooks. In addition, and at about the same time, Mr Hoyer Millar and his wife began an action against Mr Brooks and BBG concerning the beneficial ownership of one further issued share in SBS which was, at that time, at least nominally owned by BBG. In that action Mr Hoyer Millar asserted, and Mr Brooks denied, that that share was held by BBG beneficially for Mr Hoyer Millar and he sought a declaration to that effect and a mandatory order for the completion of the formalities of the transfer of the share to his wife. I shall return to consider some of the details of this claim and the petition later in this judgment.

The defendants accept that most of the accounting and other records of SBS are held by Mr Hoyer Millar but they dispute that OLG is entitled to inspect them. They say that the present claim is an abuse of the process of the court and that OLG is acting in breach of its fiduciary duties owed to SBS in pursuing it. In summary, they say that the state of deadlock will be resolved in due course in the petition and that whatever disclosure of documents needs to take place by one side to the other to the resolve the dispute has been or will be made in the course of the petition. They further say that OLG has no proper interest or purpose in seeking to inspect the records of SBS and that the sole purpose of the claim is to oppress Mr Hoyer Millar, to cause him to incur costs and, perhaps most importantly, to advance the interests of Mr Brooks in the petition.

I now have two applications before me. The first is an application by OLG for summary judgment against the defendants in respect of the relief set out in the claim. It seeks an order under section 222 of the Act or at common law that it be entitled to inspect the accounting records of SBS together with further or other relief and costs.

The second application is by the defendants for an order that the claim be struck out as being an abuse of process or alternatively that it be transferred to the Companies Court and heard together with the petition or stayed pending its determination.

Before turning to the legal principles I must set out rather more detail of the background to this dispute.

Mr Livingston-Campbell was a director of OLG until 14 October 2005 when he resigned and was replaced by a Mr Allen. Mr Livingston-Campbell again became a director on 12 September 2006. The defendants allege the purpose of his re-appointment was to deal with the accounts of SBS for the year ended 30 September 2006. The defendants also say that Mr Allen visited SBS’s auditors to inspect all the financial records of the company (including original invoices and receipts) referable to the production of the 2005 accounts and received copies of those records including the nominal ledger, profit and loss accounts and balance sheets.

In the meantime, the share action was proceeding. It came on for trial before Mr Bernard Livesey QC sitting as a deputy judge of the High Court. In his judgment of 29 June 2006 he found in favour of Mr Hoyer Millar that BBG held one of its two shares in SBS for and on behalf of Mr Hoyer Millar and ordered that it be transferred. Hence Mr Hoyer Millar and his wife now hold 50,001 shares, Saccary 50,000 shares and BBG one share. In the course of his judgment he made a number of findings which have some bearing on the issues before me.

As for Mr Brooks, he found the accuracy of his evidence was affected by his perception of his own financial interests, the habits he had acquired of manipulating the appearance of transactions, his hostility towards Mr Hoyer Millar and his desire to obstruct him as much as he could.

Further, he found that Saccary held its 50,000 shares in SBS as Mr Brooks’s nominee and that Mr Brooks arranged for OLG to replace him as his nominee as director. The findings in this regard are worth relating in full:

The deputy judge proceeded to find that despite Mr Brooks outwardly appearing to have divested himself of his directorship and shareholding in SBS, the management of the business at board level continued to be transacted as though the divestment had not occurred. Mr Brooks remained a signatory to the company bank account and received bank statements. Both he and Mr Hoyer Millar would regularly discuss matters of common concern and make plans for the future.

As for Mr Livingston-Campbell, the deputy judge found him to be subservient to Mr Brooks, partial to his master’s case and so hostile to Mr Hoyer Millar and lacking in judgment and objectivity that he could not regard him as a witness on whose evidence he could rely in respect of any disputed matter of importance.

As for BBG, the deputy judge found that Mr Brooks took steps on BBG’s behalf without consulting anyone and habitually exercised control over all decisions made by BBG either by exercising his powers as authorised signatory or by giving directions to nominee directors such as Mr Livingston-Campbell who was invested with his directorship by Mr Brooks so that he would do his master’s bidding and do so without question.

Finally, and importantly, the deputy judge found that there was an agreement between Mr Hoyer Millar and Mr Brooks that BBG would hold one of its two shares for each of them, that this agreement was binding and enforceable and that Mr Hoyer Millar was entitled to call for the transfer of the share to Mrs Hoyer Millar.

These were all strong findings and for the purposes of the proceedings before me I am quite satisfied in all the circumstances that I must take it to be at least seriously arguable that OLG, by its director Mr Livingston-Campbell, is continuing to act at the bidding and behest of Mr Brooks in pursuing the claim which is now before me.

In November and December 2006 another material development took place. By letter dated 23 November 2006, BBG and Saccary, by their solicitors, wrote to the solicitors acting for Mr Hoyer Millar in the petition, offering to sell their shareholding in SBS to Mr Hoyer Millar and to pay the costs of the petition on that basis. By letter dated 4 December 2006, that offer was accepted and shortly afterwards a draft consent order was prepared. In the meantime, Mr Brooks was joined as a party to the petition. It seemed therefore that all that remained was to value the shares of Saccary and BBG.

Then, at the beginning of this year, OLG began to issue a series of demands for inspection of the documents of SBS held by Mr Hoyer Millar. The first was a letter of 15 January 2007 from Mr Livingston-Campbell to Mr Hoyer Millar in which he indicated that OLG wished to inspect the accounting records of SBS, including all original and accounting documents, receipts and invoices. Thereafter further requests were made for disclosure of documents by letters of 24 January 2007 and 1 February 2007.

In parallel, on 18 January 2007, a draft re-amended defence was served by the respondents in the petition. It alleged that Mr Hoyer Millar improperly paid consultancy fees to an organisation called PHM Design Ltd, a company entirely controlled by him and his wife; Mrs Hoyer Millar was improperly paid monies for services she had never provided; Mr and Mrs Hoyer Millar improperly withdrew monies from SBS at will and Mr Hoyer Millar procured SBS to obtain loans from other companies which he controlled. It was further claimed that Mr Hoyer Millar must account in any valuation of shares for all monies improperly paid to himself, his wife and their associated company PHM Design Ltd.

Shortly thereafter, by letter dated 29 January 2007, disclosure was sought in the petition of documents relating to the issues raised by the draft re-amended defence. As I understand it, no complaint has been made that the request has been dealt with in other than a satisfactory manner.

The response of Mr Hoyer Millar to the requests made by Mr Livingston-Campbell on behalf of OLG has been consistent. Essentially, Mr Hoyer Millar has offered to provide inspection of documents for the year ending 30 September 2006 so as to permit the 2006 accounts to be finalised, but not otherwise. His reasoning is set out in an email of 31 January 2007:

He reiterated the position in a further email of 5 February 2007, confirming he would supply information relevant to the 2006 accounts:

The next material development was a letter dated 20 February 2007 to Mr Hoyer Millar from the respondents to the petition denying that any agreement had been reached for the sale of the shares in SBS. Mr Hoyer Millar thereupon promptly issued an application to have this issue determined. It came on for hearing before Mr Registrar Rawson and by order of 14 June 2007 he declared that an agreement had been reached between Mr Hoyer Millar and BBG and Saccary on 4 December 2006 that Mr Hoyer Millar would buy and BBG and Saccary would sell their shareholding in SBS and that BBG would pay the costs of the petition at the date of the agreement. He gave directions for a hearing to determine the valuation of the shares. I understand that decision is now the subject of an appeal.

In the meantime, a solicitor’s letter from OLG of 5 March 2007 indicated they had received instructions to institute proceedings which to allow OLG to inspect the accounting records of SBS. It was followed by a response from the solicitors for Mr Hoyer Millar of 6 March 2007 alleging abuse of process and saying the request from OLG should be dealt with after the petition, or at least heard by the Companies Court. On that same day these proceedings were issued. On 7 March 2007, the solicitors for OLG declined to agree to these proceedings being heard by the Companies Court on the basis that the petition was entirely distinct.

On 19 March 2007, the solicitors of OLG elaborated the basis of the claim, asserting that under section 222 of the Act, the accounting records were at all times to be open for inspection by the officers of the company and that OLG wished to exercise that right. The letter indicated that OLG would be content to see and if appropriate take copies of:

bank statements since 1 January 2002,

invoices and receipts for that period that relates to the entries in the bank statements,

management accounts from 1 January 2002.

I understand that no objection is taken to the provision of the bank statements. However the defendants maintain their objection to disclosure of the documents in categories ii) and iii).

The reason OLG wishes to examine these document is elaborated in the witness statement of Mr Livingston-Campbell dated 20 April 2007 and made in support of this application. He says that OLG wishes to examine the financial records in order to consider the propriety of a number of withdrawals from SBS. He refers in particular to the payments made out of SBS to Mrs Hoyer Millar and to PHM Designs Ltd. He identifies the various sums paid and says that OLG wishes to look at the accounting information relating to these transactions and to look more generally at the expenses incurred by SBS since OLG questioned their propriety. In particular, he says, OLG considers that neither Mrs Hoyer Millar nor PHM Designs Ltd, performed any genuine services for SBS at all. It is to be noted that this is the very same allegation that is raised in the re-amended points of defence to the petition.

Every company must keep accounting records which are open to inspection by the company’s officers. This duty is imposed by section 221 of the Act which reads, so far as relevant:

Section 222 of the Act deals with where and how long such records are to be kept and reads, so far as relevant :

In Conway v Petronius Clothing Co. [1978] 1 WLR 72 Slade J considered the question whether directors of a company have a right to inspect the books of the company, either by virtue of section 147 of the Companies Act 1948 or at common law or on some other grounds. After a detailed review of the legislative history and of earlier authority he reached the following conclusions at pages 89G to 91A:

Neither party suggested that the 1985 Act has conferred any further rights on directors to expect the books or accounts of a company and in my judgment the conclusions reached by Slade J are those which must guide me on the applications before me. Mr Hill-Smith, who appeared on behalf of OLG, has referred me to a number of cases in other jurisdictions in which Conway has been considered, most notably the decisions of the Supreme Court of New Zealand in Berlei Hestia (NZ) Ltd v Fernyhough [1980] 2 NZLR 150, the Court of Appeal of Singapore in Wuu Khek Chiang George v ECRC land Pte Ltd [1999] 3 SLR 65, the High Court of Singapore in Welch & Anor v Britannia Industries Pte Ltd [1993] 1 SLR 673 and the Court of Appeal of Hong Kong in Re Baldwin Construction Co Ltd Anor [2001] 3 HKLRD 430, but in my judgment they provide no further assistance in relation to the matters I have to decide. So far as the applications before me are concerned I consider it particularly important to have in mind that the right of a director to inspect the books of accounts of a company stems from his holding of the office of director and is a right conferred by the common law in order to enable him to carry out his duties as director and for the benefit of the company. It is a personal right only in the sense that it may be invoked to enable the director to discharge his personal obligations to the company and his statutory obligations. In general a director will not be called upon to give reasons before being allowed to exercise his right of inspection because the court will assume he is acting for the benefit of the company. But if it is clearly shown that a director is not using the right for the purposes for which it is conferred but rather to injure the company or for other and improper purposes then the court may not intervene to assist him. Each case must depend upon its own facts.

The defendants submit that the claim is fatally deficient because it seeks an order that OLG be entitled to inspect the accounting records of SBS under section 222 of the Act and, as Conway makes clear, the section confers no rights enforceable by civil process. I accept the submission that section 222 confers no rights enforceable by civil process; however, the particulars of claim identify the essential facts which enable OLG to make a claim based upon the right conferred by the common law. In particular, the particulars of claim allege that OLG is one of two directors of SBS, that the accounting records of SBS are held by and are under the control of Mr Hoyer Millar, that OLG has requested Mr Hoyer Millar to make those records available to OLG but that SBS has refused and continues to refuse to allow OLG to inspect them. It is further alleged that no proper reason has been put forward for the withholding of inspection. It is true that the claim form refers only to section 222 but in so far as this is a deficiency it is a purely formal one and easily remedied. In my judgment it would be wrong to deprive OLG of any relief to which it is properly entitled on this ground.

The defendants also take a further preliminary point, namely that the claim form and particulars of claim refer only to “accounting records” and yet the documents sought upon this application (being invoices and receipts) extend beyond anything which can properly be so described. Once again I think there is nothing in this point. OLG has always made clear which categories of documents it seeks to inspect. I agree with the defendants that the documents sought extend beyond “accounting records” but the defendants have never been in any doubt as to what OLG intended that expression to encompass. The deficiency here is another formal one and I am not prepared to decide the applications before me on this basis.

I turn then to the substantive issue, namely whether I should accede to OLG’s submissions and order inspection on a summary basis or, alternatively, accede to the defendants’ submissions and strike out the claim or transfer it to the Companies Court and direct that it be heard together with the petition or stay it pending the determination of the petition.

OLG submits that its prima facie right to inspect the records of SBS is clear. Further, it acknowledges and, indeed, prays in aid that it wishes to inspect those records to examine the propriety of certain transactions including the payments made to Mr Hoyer Millar, his wife and PHM Design Ltd. This, it says, is something that, as director, it ought to be doing. It accepts that those documents might also be relevant to the defence to the petition but says that is irrelevant because the existence of the petition does not take away the rights of OLG as a director. Further, the investigation of potential impropriety in the finances of SBS might adversely affect Mr Hoyer Millar but it can hardly be said to damage the interests of SBS or otherwise materially to injure it. To the contrary, if potential claims available to SBS are revealed then this can only enhance the value of SBS. In short, it submits that the interests of SBS and the respondents to the petition are coincident and there is nothing to displace the prima facie entitlement of OLG to inspection. Accordingly, it is entitled to summary judgment.

Attractively though these submissions were presented, I have reached the conclusion they must be rejected. In my judgment the defendants have raised a serious issue as to whether inspection is truly sought by OLG for the benefit of SBS and to enable OLG to discharge its obligations to SBS as a director. The following aspects of the background are to my mind highly material.

First, and for the reasons I have given, I believe I must treat OLG, Saccary and BBG as being synonymous with Mr Brooks for the purposes of the application for summary judgment. This is not a case where I can regard OLG on the one hand and Saccary, BBG and Mr Brooks on the other as being separate and distinct.

Second, the allegation of impropriety which is said to have prompted these proceedings for inspection is the very same allegation which is now raised in the defence to the petition and, as I have said, the parties to these proceedings must also be taken to be parties to the petition. It seems to me to be most unlikely to be a coincidence that the request for inspection by OLG which preceded these proceedings was made at the same time as the amendment to introduce the allegation of impropriety into the defence to the petition.

Third, the defendants maintain that Mr Allen inspected all the financial records of SBS in order to prepare the accounts for the year ending 30 September 2005. Further, there is no doubt that Mr Livingston-Campbell has been offered inspection of all documents necessary to enable OLG to deal with the accounts for the year ending 30 September 2006. He is nevertheless determined to pursue his claim for inspection of all the records of the company since 2002.

Fourth, and importantly, it has been found that BBG and Saccary agreed to sell their shares in SBS to Mr Hoyer Millar in December 2006. Subject to an appeal, all that remains is to value those shares. In these circumstances the defendants say that but for the wrongful refusal by Mr Brooks, BBG and Saccary to acknowledge this agreement and agree a sensible valuation OLG would no longer be a director of SBS and that it is only a matter of time before it is removed. OLG is, say the defendants, hanging on to its office as a result of the delaying tactics of Mr Brooks.

I believe all these matters raise a strong inference that Mr Brooks is using OLG in these proceedings to try and secure the disclosure of documents that may assist him in the petition and support his contention that SBS has suffered a diminution in value as a result of wrongful activities of Mr Hoyer Millar. I think the defendants have raised a serious case that OLG is not pursuing these proceedings through any genuine concern that it is necessary or appropriate to do so in order to discharge its obligations. Indeed, I consider the defendants have established a substantial and credible case that OLG’s real purpose is to assist Mr Brooks rather than to benefit SBS. Disclosure has already been sought and given in the petition and no doubt any request or application for further disclosure will be considered on its merits.

In all these circumstances it would, in my judgment, be wrong to grant OLG summary judgment on its claim. However, I believe it would also be wrong to strike out the proceedings at this stage and without the parties having the opportunity to adduce further evidence and, possibly, challenge any such evidence in cross examination. In the light of the common issues and parties I have reached the conclusion that the appropriate course is to direct that these proceedings be transferred to the Companies Court to be heard together with the petition. That will enable one judge to make appropriate directions for the further hearing of both sets of proceedings.

I will hear further argument as to the appropriate form of order in the event the parties are unable to reach agreement.