Company – Register of members – Right to inspect – Respondent leaseholder of flat making request to inspect register of members of management company – Court directing appellant to comply with request – Appellant appealing – Whether respondent having proper purpose for making request for inspection of register – Appeal dismissed
The appellant company was a lessee-owned management company responsible for the management functions of a residential apartment complex known as Victoria Mill in Reddish, Stockport. The respondent was the registered owner of the leasehold interest in one of the flats in the complex under a tripartite lease with the landlord and the appellant. The appellant provided the management functions for the benefit of the complex and served no other purpose save to provide those services, which were financed by service charges payable by individual occupational leaseholders. Under the terms of their respective occupational leases, each leaseholder, including the respondent, was required to be a member of the appellant.
The respondent requested to inspect the appellant’s register of members under section 116 of the Companies Act 2006 on the grounds that he wished to contact fellow members with a view to seeking a general meeting of members and proposing resolutions to remove and replace the existing directors and the current managing agent.
The appellant applied for a declaration, pursuant to section 117 of the 2006 Act, that the respondent did not have a proper purpose for making the request for inspection of the register. The judge directed the appellant to comply immediately with the request pursuant to section 117(5): [2019] EWHC 3590 (Ch).
The appellant appealed contending that it was essential to differentiate between the two different capacities of the respondent: (i) as a party to the long-term lease which provided for a range of services to be provided by the appellant; and (ii) as a member of the appellant as a company. The appointment and removal of managing agents was relevant to the first capacity but not the second. The judge had fallen into error by equating the management and governance of the company with the discharge of covenants for services under the lease. Section 116 was only concerned with matters relating to corporate governance.
Held: The appeal was dismissed.
(1) The expression “proper purpose” in section 117(3) ought to be given its ordinary and natural meaning. The court was to determine the purpose of the request on the balance of probabilities on the evidence before it. After the purpose was established, the court would consider whether it was a proper purpose, adopting an objective test, on the basis of the evidence before it, which would often depend on the precise facts and circumstances. The onus was on the claimant company to satisfy the court on the balance of probabilities that the request was improper. If the court was in any doubt it should not make a no-access order. It was for the person making the request, rather than the court, to consider whether access would be of value to that person: Burry & Knight Ltd v Knight [2014] EWCA Civ 604; [2014] 1 WLR 4046 and Fox-Davies v Burberry plc [2017] EWCA Civ 1129; [2018] Bus LR 332 applied.
(2) There was a clear distinction between the rights of a leaseholder in that capacity and the rights of a member of a company conferred on the member in that different capacity. However, the fact that two sets of rights were distinct did not mean that the content of those rights was mutually exclusive. Generally speaking, if a person had a number of rights which afforded that person a remedy, the person was able to choose which right to exercise in order to achieve his goal. There might be exceptions to that principle, for example where it would amount to abuse of one right to seek to rely on it, rather than on the alternative right, but nothing of that nature was alleged in the present case. Therefore, it did not follow from the fact that the respondent’s rights as a leaseholder and his rights as a shareholder were distinct that his attempt to exercise his rights as a member and shareholder through a general meeting was improper, even if the ultimate remedy he was seeking, removal of the directors and appointment of new managing agents, could be achieved by another route: Morshead Mansions v Di Marco [2008] EWCA Civ 1371; [2008] PLSCS 345 applied.
(3) The appellant’s attempts to draw a sharp dividing line between enforcement of the covenants under the lease and corporate governance, and to give to corporate governance in the present context a restricted and artificial meaning was flawed. It was clear that it was impossible in the present case to draw a sharp dividing line between the covenants under the lease and the affairs of the company. The appellant’s sole relevant purpose under its constitution was the management of the complex. So, a complaint which related to the appointment of agents to carry out the day-to-day management of the complex was central to the objects of the company and to the way in which the company was run. Such a complaint was a matter concerning the affairs of the company which it was legitimate to seek to raise at a general meeting. It therefore lay within the area of overlap between the two sets of rights, those of shareholder and those of leaseholder. Corporate governance, at least in the present context, did not have the narrow meaning for which the appellant contended. Accordingly, the respondent’s purpose was one which lay properly within his rights as a leaseholder as well as his rights as a shareholder.
(4) Since a company in general meeting could properly pass a resolution, at the instigation of a shareholder such as the respondent, for the removal of the managing agents, it would be difficult if not impossible to suggest that the respondent had an improper purpose in seeking to obtain support for such a meeting at which such a resolution could be passed, whatever his rights might be under the terms of his lease or under the landlord and tenant legislation. It was not for the appellant to determine in which capacity the respondent might choose to challenge the appointment of the managing agents. The fact that the appellant might regard the appointment of managing agents as falling within their duties under the lease did not assist.
Justin Bates and Alice Richardson (instructed by PM Legal Services, of Doncaster) appeared for the appellant; Robert Sterling (instructed by Direct Access) appeared for the respondent.
Eileen O’Grady, barrister
Click here to read a transcript of Houldsworth Village Management Co Ltd v Barton
