When is a sec 116 request for a proper purpose?
18 / 10 / 2017
In the recent decision of Fox-Davies v Burberry, the Court of Appeal analyses when a request for a copy of a company’s register of members under section 116 of the Companies Act 2006 (the Act) is made for a proper purpose. The decision establishes some important principles on the subject matter but does not provide clear guidance on the proper purpose test.
The appellant’s business, Trust Property Researches (TPR), traces lost members of companies and, for a fee or commission, reunites them with their shares. TPR provides the names and last known addresses of lost members to another entity, Interum Limited (Interum) where Mr Fox-Davies is also a director and shareholder. Interum then makes the information available to local “specialist researchers” in the relevant countries who assist in tracing the lost members and with whom he shares his fee.
The appellant, as a non-member, made a request for a copy of the register of members of Burberry PLC (Burberry) under section 116(1)(b) of the Act (the Request). Burberry which had itself appointed a search company offering shareholders better terms than the appellant, refused the Request. Upon Burberry’s application, the Registrar ruled that the Request was:
- not valid as it did not comply with section 116, so that Burberry was not obliged to comply with it; and
- not made for a proper purpose.
The appeal challenged both limbs of the Registrar’s decision.
Validity of the request
The Request disclosed the fact that TPR would disclose the information obtained from Burberry to Interum but did not identify the external agencies’ names and addresses. The appellant argued that he could not identify the appropriate researchers before receiving the register and, from it, learning the countries in which members’ addresses were located.
The Court of Appeal was unanimous in finding that the Registrar’s decision that the Request therefore did not comply with the statutory requirements in section 116(4)(d) of the Act was correct. The appellant should have provided the names and addresses of all researchers even if it later turned out that such disclosure in relation to some persons was unnecessary. The Act required identification of all persons to whom information may, but not necessarily will, be disclosed.
Was there a proper purpose?
Although the Court of Appeal is united in finding that the purpose in this case was improper, the appeal judges arrive at that conclusion through different reasoning in the obiter discussion.
All three judges agree that the test of whether a purpose is proper:
- is objective, i.e. “it is made by the court on the basis of its evaluation of the purpose”; and
- does not depend on whether it is in the interests of shareholders.
No distinction should be made between requests made by members and those by non-members. The same purpose test should apply to all requests.
The Court further states that, for a purpose to be proper, it does not necessarily need to be in the interests of shareholders. Therefore, requests for the purpose of credit and identity checks or general statistical research or enforcing judgments, and even in some cases investigative journalism could all, for instance, constitute proper purposes.
The Court emphasises however that, when considering whether a purpose is proper, no “sharp distinction between ends and means can be made”, and an otherwise proper purpose can be rendered improper by the means of achieving it.
For David Richards LJ, it is the specific terms the appellant offered to lost members – i.e., the fact that, once traced, the appellant would only notify the lost member that he had information that would lead to their recovery of a lost asset without giving them any further information about the asset or its value, nature or location – that rendered the purpose of the Request improper.
Sir Patrick Elias, on the hand, is of the opinion that the appellant had provided insufficient details on the terms of the applicable charges for the company or the court to determine whether or not the purpose was proper.
While the clarification that the proper purpose test is the same regardless of whether the request is made by a member or a non-member is welcome, the decision otherwise offers little guidance. It is unclear, for instance, how significant the presence of another (company-appointed) tracing agency is on its own – arguably, the company, by appointing such an agency, considers the commercial objective of the tracing agency to be a proper purpose within the meaning of section 116 – and what difference it makes whether the company-appointed tracing agency offers more favourable terms to the shareholders than the “external” agency. Sir Elias in the obiter discussion mentions the possibility of imposing a condition requiring the external agency in such a case to reveal the fact that another agency may be available on more favourable terms.
For further information please contact Marlies Braun at firstname.lastname@example.org.