In a recent decision, the Eastern Caribbean Supreme Courts' Court of Appeal reaffirmed the statutory rights of directors under the BVI Business Companies Act, 2004 (the "BCA") to inspect company documents, including unredacted engagement letters that reveal the identity of litigation funders. The case provides important guidance for BVI companies, their directors, and stakeholders on the scope of directors' inspection rights, the limits of the "improper purpose" exception, and the practical implications for corporate governance.
Background
The context of the dispute was a complex corporate structure involving two BVI holding companies, in which one director sought access to a broad range of company documents. The director asserted that she was unable to fulfill her fiduciary duties due to being denied access to records necessary to assess the companies' affairs, including their financial positions and litigation exposures.
The companies resisted full disclosure, particularly objecting to revealing the identity of the third-party litigation funder. They argued that the director's request was made for an improper purpose—namely, to benefit parties adverse to the companies in ongoing litigation and to disrupt the companies' legal funding arrangements.
The trial judge ordered the companies to provide the director with electronic copies of the requested documents, including unredacted engagement letters. The companies appealed, contending that the judge failed to properly consider the improper purpose exception and erred in both fact and law.
Key Issues on Appeal
The appeal focussed on three main questions:
- Whether the statutory scheme under section 100 of the BCA allows the court to refuse inspection if the director is acting for an improper purpose;
- whether the director was, in fact, acting for a proper purpose in seeking the documents; and
- whether the lower court's order should be set aside on the basis of improper purpose.
Court of Appeal's Analysis
Statutory Right to Inspection
The Court of Appeal emphasised that section 100(1) of the BCA grants directors an unqualified right to inspect company documents and records. This right is distinct from the more limited rights of company members, whose inspection rights can be restricted by the board. For directors, the statutory language is "uncompromising," imposing a demanding obligation on companies to facilitate inspection.
Improper Purpose Exception
While the court acknowledged that the right of inspection exists to enable directors to fulfill their duties, it also recognised that the right cannot be used for an improper purpose. However, the burden is on the company to provide cogent evidence that the director is seeking documents for an improper purpose. Mere suspicion, conjecture, or inference is insufficient.
In this case, the companies' allegations of conspiracy and abuse of process were not supported by substantive evidence. The court found that the director's desire to understand the companies' litigation exposure and funding arrangements was a legitimate concern for any responsible director.
Assessment of Purpose
The Court of Appeal reviewed the trial judge's reasoning and found that he had, in substance, considered whether the director was acting for an improper purpose. The judge concluded that the director's request was driven by her fiduciary obligations and the need to assess the companies' financial and litigation positions, not by any ulterior motive.
No Error in Law or Fact
The appellate court found no error in the trial judge's application of the law or assessment of the facts. The companies failed to demonstrate that the director's inspection request was for an improper purpose, and the statutory right to inspection prevailed.
Implications for BVI Companies and Directors
This decision reinforces the robust statutory rights of directors in the BVI to access company records, even in contentious or adversarial circumstances. Companies cannot withhold documents from directors based on unsubstantiated allegations of improper purpose. The ruling also clarifies that directors are entitled to information necessary to assess litigation risks and funding arrangements, which may include sensitive details such as the identity of litigation funders.
For boards and corporate stakeholders, the case underscores the importance of transparency and the need to accommodate directors' inspection rights, subject only to clear and proven exceptions. Companies should ensure that any refusal to provide documents is supported by strong evidence and legal advice.
Conclusion
The Court of Appeal's decision provides welcome clarity on the scope of directors' inspection rights under BVI law. Directors seeking to fulfil their fiduciary duties are entitled to broad access to company records, and companies must tread carefully before asserting the improper purpose exception. The judgment serves as a reminder of the high bar for restricting directors' statutory rights and the central role of transparency in corporate governance.
The successful director was represented by Conyers BVI whose team comprised of Partner Richard Evans and Counsel Jane Fedotova who instructed Paul Chaisty KC of Kings Chambers.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
