Hau Tau Khang v Sanur Indonesian Restaurant: Director's Right to Inspect Company Accounts & Fiduciary Duty

Hau Tau Khang brought an action against Sanur Indonesian Restaurant Pte Ltd and Hau Tau Thong. Hau Tau Thong appealed the Assistant Registrar's decision to dismiss his application to enforce his right to inspect the company's accounts under s 199(3) of the Companies Act and for specific discovery. Steven Chong J. of the High Court of Singapore allowed the appeal in part, holding that the director's right to inspect the company's accounts is related to the director's discharge of his duties, even if done to prove he had not acted in breach of his duties.

1. Case Overview

1.1 Court

High Court

1.2 Outcome

Appeal allowed in part.

1.3 Case Type

Civil

1.4 Judgment Type

Grounds of Decision

1.5 Jurisdiction

Singapore

1.6 Description

Appeal regarding a director's right to inspect company accounts under s 199(3) of the Companies Act. The court allowed the appeal, finding the right was related to the director's duties.

1.7 Decision Date

24 April 2011

2. Parties and Outcomes

Party Name	Role	Type	Outcome	Outcome Type	Counsels
Hau Tau Khang	Respondent	Individual	Appeal dismissed in part	Partial	Adrian Wong of Rajah & Tann LLP Nelson Goh of Rajah & Tann LLP Jasmine Foo of Andrew Chua & Co
Sanur Indonesian Restaurant Pte Ltd	Respondent	Corporation	Appeal dismissed in part	Partial	Adrian Wong of Rajah & Tann LLP Nelson Goh of Rajah & Tann LLP Jasmine Foo of Andrew Chua & Co
Hau Tau Thong	Appellant	Individual	Appeal allowed in part	Partial	Tony Yeo of Drew & Napier LLC Esther Foo of Drew & Napier LLC

3. Judges

Judge Name	Title	Delivered Judgment
Steven Chong	Justice of the High Court	Yes

4. Counsels

Counsel Name	Organization
Adrian Wong	Rajah & Tann LLP
Nelson Goh	Rajah & Tann LLP
Jasmine Foo	Andrew Chua & Co
Tony Yeo	Drew & Napier LLC
Esther Foo	Drew & Napier LLC

4. Facts

Appellant and respondent are co-directors with equal shareholdings in Sanur Indonesian Restaurant Pte Ltd and Sanur Holding Pte Ltd.
The Companies were engaged in the business of running a chain of restaurants serving Indonesian cuisine under the trade name of “Sanur”.
The relationship between the brothers began to deteriorate in 2003.
In 2006, they entered into an agreement to keep the restaurants in operation with a view to selling the business and the properties of the Companies.
By 2009, all the Sanur restaurants had ceased operations.
In October 2009, the appellant and his wife started another Indonesian restaurant, Pepes, at the same location at Ngee Ann City.
The respondent claimed that the cash deposits did not match the daily cash sales of the restaurants.
A report was issued by Stone Forest in which it was reported that “based on the monthly sales summary for all 3 restaurants, the total amount of cash sales not deposited into Sanur’s bank accounts amounted to S$153,525.45”.
In August 2010, the respondent applied for leave of court to commence a derivative action on behalf of the Companies against the appellant for alleged breaches of fiduciary duties.

5. Formal Citations

Hau Tau Khang v Sanur Indonesian Restaurant Pte Ltd and another (Hau Tau Thong, non-party) and another matter, Registrar's Appeal Nos 491 and 492 of 2010 (Originating Summons No 879 and 1197 of 2010), [2011] SGHC 97

6. Timeline

Date	Event
2003-01-01	Relationship between the brothers began to deteriorate.
2006-01-01	Agreement to keep the restaurants in operation with a view to selling the business and the properties of the Companies and eventually of an orderly winding up of the Companies was entered.
2009-09-01	Respondent terminated the services of Ms Cecilia Tan.
2009-10-01	Appellant and his wife started another Indonesian restaurant, Pepes, at the same location at Ngee Ann City.
2010-08-01	Respondent applied for leave of court to commence a derivative action on behalf of the Companies against the appellant for alleged breaches of fiduciary duties.
2010-01-01	Appellant instituted a separate application to exercise his right as a director to inspect SIRPL’s accounts.
2011-04-25	Judgment reserved.

7. Legal Issues

Director's Right to Inspect Company Accounts
- Outcome: The court held that the right to inspect the Companies’ accounts is related to the appellant’s discharge of his director’s duties even if he did so with a view to prove that he had not acted in breach of his duties.
- Category: Substantive
- Sub-Issues:
  - Restrictions on right to inspect
  - Improper purpose of inspection
Breach of Fiduciary Duty
- Outcome: The court did not make a determination on whether a breach occurred, but considered the allegations in the context of the director's right to inspect.
- Category: Substantive
- Sub-Issues:
  - Financial irregularities
  - Usurping corporate opportunities
  - Conflict of interest
Specific Discovery
- Outcome: The court agreed with the AR that the application for specific discovery was premature.
- Category: Procedural
- Sub-Issues:
  - Prematurity of application
  - Exceptional circumstances

8. Remedies Sought

Right to Inspect Company Accounts
Specific Discovery

9. Cause of Actions

Breach of Fiduciary Duty
Derivative Action

10. Practice Areas

Commercial Litigation
Corporate Law

11. Industries

Restaurant

12. Cited Cases

Case Name	Court	Affirmed	Citation	Jurisdiction	Significance
Oxford Legal Group Ltd v Sibbasbridge Services plc and anor	England and Wales Court of Appeal (Civil Division)	Yes	[2008] EWCA Civ 387	England and Wales	Cited regarding the restrictions on a director's right to inspect company accounts and whether the right was exercised for an improper purpose.
Wuu Khek Chiang George v ECRC Land Pte Ltd	Court of Appeal	Yes	[1999] 2 SLR(R) 352	Singapore	Cited for the principle that a director's right to inspect is subject to limitations and cannot be exercised for an ulterior purpose or to injure the company.
Conway v Petronius Clothing Co Ltd	Not Available	Yes	[1978] 1 All ER 185	England and Wales	Cited regarding the origin of the right to inspect company accounts.
Berlei Hestia (NZ) Ltd v Fernyhough	Not Available	Yes	[1980] 2 NZLR 150	New Zealand	Cited regarding the nature of the right to inspect and whether it is a creature of statute.
Welch and anor v Britannia Industries Pte Ltd	Not Available	Yes	[1992] 3 SLR(R) 64	Singapore	Cited for the principle that a director is not required to furnish any reason to inspect the company's accounts.
Edman v Ross	Not Available	Yes	[1922] 2 SR (NSW) 351	New South Wales	Cited for the principle that a director is not required to furnish any reason to inspect the company's accounts and that the court would assume the right would be exercised for the benefit of the company.
Ng Joo Soon (alias Nga Ju Soon) v Dovechem Holdings Pte Ltd and another suit	Not Available	Yes	[2011] 1 SLR 1155	Singapore	Cited for the principle that a director is not required to furnish any reason to inspect the company's accounts.
State of South Australia & Anor v Barrett & Ors	Not Available	Yes	(1995) 64 SASR 73	South Australia	Cited for the principle that the right to inspect the company’s accounts flows from the office of the director and cannot be exercised once he or she ceases to be a director.
Haw Par Bros (Pte) Ltd v Dato Aw Kow	Not Available	Yes	[1971–1973] SLR(R) 813	Singapore	Cited for the principle that an ex-director has no proprietary, managerial or other similar interest in the accounting and other records of a company.
Molomby v Whitehead and Australian Broadcasting Corporation	Not Available	Yes	[1985] 63 A.L.R.282	Australia	Cited for the principle that the right to inspect is a legal incident of directorship.
Law Wai Duen v Boldwin Construction Co Ltd	Hong Kong Court of Appeal	Yes	[2001] HKCA 284	Hong Kong	Cited regarding the responsibilities of a director and the need to satisfy himself as to any matter in relation to the company’s business.
McDougall v On Q Group Ltd	Supreme Court of Victoria	Yes	[2007] VSC 184	Victoria	Cited regarding the right of inspection being invoked in relation to a past event and that the mere fact that a director requires access to company documents to defend a claim by the company against the director does not, by itself, establish that the director requires access for an impermissible private purpose.
Re Carry Strong Dyeing Factory Ltd	Not Available	Yes	[2007] HKEC 1140	Hong Kong	Cited regarding the fact that a director of a dormant company remains liable as a director with statutory duties and must continue to hold the right to inspect.
Australian Metropolitan Life Assurance Co Ltd v Ure	Not Available	Yes	(1923) 33 CLR 199	Australia	Cited regarding the onus of establishing that the right is being, or will be, exercised for an improper purpose lies on the person who asserts it.
Campbell v Jervois Mining Limted	Federal Court of Australia	Yes	[2009] FCA 316	Australia	Cited regarding the threshold for demonstrating that an exception applies to the right to inspect is a high one.
Pang Yong Hock & another v PKS Contracts Services Pte Ltd	Not Available	Yes	[2004] 3 SLR(R) 1	Singapore	Cited regarding the principles for granting leave to commence a derivative action.
Law Chin Eng & Another v Hiap Seng & Co Pte Ltd	High Court	Yes	[2009] SGHC 223	Singapore	Cited regarding the principles for granting leave to commence a derivative action.
Teo Gek Luang v Ng Ai Tiong and others	Not Available	Yes	[1998] 2 SLR(R) 426	Singapore	Cited regarding the principle that, at the leave stage, the court should not adjudicate on disputed issues of fact, but merely to determine whether a prima facie case has been made out.
Agus Irawan v Toh Teck Chye & others	Not Available	Yes	[2002] 1 SLR(R) 471	Singapore	Cited regarding the principle that, at the leave stage, the court should not adjudicate on disputed issues of fact, but merely to determine whether a prima facie case has been made out.
RHM Foods and Another v Bovril Ltd	England and Wales Court of Appeal	Yes	[1982] 1 WLR 661	England and Wales	Cited regarding the principles for granting specific discovery at an early stage of proceedings.
Bank of India v Gobindram Naraindas Sadhwani & Anor	Not Available	Yes	[1994] 2 HKLR 69	Hong Kong	Cited regarding the principles for granting specific discovery at an early stage of proceedings.

13. Applicable Rules

Rule Name
Rules of Court (Cap 322, R 5, 2006 Rev Ed)

14. Applicable Statutes

Statute Name	Jurisdiction
Companies Act (Cap 50, 2006 Rev Ed)	Singapore

15. Key Terms and Keywords

15.1 Key Terms

Right to inspect
Director's duties
Fiduciary duties
Derivative action
Company accounts
Ulterior purpose
Specific discovery

15.2 Keywords

director
inspection
company
accounts
fiduciary duty
derivative action

17. Areas of Law

Area Name	Relevance Score
Fiduciary Duties	80
Companies Act	75
Company Law	75
Corporate Litigation	60
Disclosure of documents	60
Civil Procedure	50
Litigation	40
Commercial Disputes	30

16. Subjects

Company Law
Directors' Duties
Inspection of Company Records