Protecting shareholder information: the balance between public interest and commercial exploitation - Richard Charles Fox-Davies v Burberry Plc [2017] EWCA Civ 1129

Publication | March 2018

There has always been a fine balance to be struck between the public interest in understanding who owns and runs companies and protection of the personal information of those who do.

The Companies Act 2006 (CA 2006) provides a mechanism to obtain a copy of a company’s register of members. However, in an age where information is an asset of increasing value, individuals or entities who are hoping to benefit from the use of such details will find the courts ready to police their efforts and consider whether the information is being requested for a proper purpose.

What constitutes a proper purpose (such as to allow access to the register) can be a matter of some contention, particularly since there is very little judicial guidance and no statutory definition. In Fox- Davies v Burberry plc the Court of Appeal recently considered the issue for only the second time.

Rights of access

Every company with a share capital must keep a register of its members, including their addresses, under s113 CA 2006. Prior to the Companies Act 1985, a shareholder’s right to access the register of members was treated as incidental to his ownership of shares.

After 1985, the court had a discretion to allow inspection, but the grounds for exercise of this discretion were clarified under s116 CA 2006 as it had become clear that there were some only too willing to abuse the rights of access in order to advertise or solicit customers.

Pursuant to s116 CA 2006, that register of members is open to inspection by any person who makes a request in the prescribed format and pays the necessary fee, provided that they state the purpose for which the information is to be used and identify any other person to whom the information will be disclosed (i.e. the extent of the proposed dissemination of the information).

A company which receives such a request must then act swiftly. Within five working days of receipt of a technically valid request, the company must either comply or apply to the court under s117 CA 2006 for a direction that it need not comply because the information is not being sought for a “proper purpose”.

If the company refuses a valid request to inspect without such a court order, it will be committing a criminal offence under s118 CA 2006; if it accedes to an improper request, it may be at risk of a claim by a shareholder this his data protection rights have been infringed. Equally, where a request for a copy of the register is knowingly or recklessly misleading or false, the requestor will attract criminal liability under s119 CA 2006.

The question of proper purpose

The requirement to deal with a s116 request swiftly and the potential criminal sanctions are fairly draconian.

If a request does not comply with the “technical” requirements of s116 (i.e. it does not set out all the information required by that section, including the identity of any persons to whom the information is to be disclosed), it will not be valid and the company can resist it. More difficult is determining whether the request has been made for a proper purpose; the burden of proof in demonstrating (on the balance of probabilities) that a request is for an improper purpose is on the company.

The law in this area has been left to develop on a case by case basis.

Given the lack of clarification within the CA 2006 as to what constitutes a “proper purpose” in relation to a s116 request, in January 2014 the Institute of Chartered Secretaries & Administrators (ICSA) produced a guidance note including examples of proper and improper purposes.

For example, a shareholder or indirect investor wanting to contact other shareholders about matters relating to the company, their shareholding or a related exercise of rights would, according to the ICSA guidance, have a proper purpose. However, requests from agencies which “specialise in identifying and recovering unclaimed assets for [their] own commercial gain by then contacting and extracting commission or fees from the beneficiaries” would not have a proper purpose “where the company is not satisfied that such activity is in the interests of shareholders”.

That guidance has been relied upon by the judiciary but it remains nonexhaustive and non-binding. Indeed the Court of Appeal has now held that a proper purpose need not be one which is “in the interests of shareholders”.

Recent decisions

The first time the Court of Appeal considered the s116 provisions was in 2014 in Burry & Knight Limited & Another v Knight [2014] EWCA Civ 604.

In that case the applicant, a minority shareholder in two family companies, made a request for a copy of their registers for three purposes: to study current shareholders, to write to the them detailing long-standing concerns about the past conduct of the company directors and to raise concerns about the proposed method of share valuation of the companies. Only the third purpose was found to be proper at first instance, with the result that the court directed the companies not to comply with the request.

The Court of Appeal held that the words “proper purpose” should be given their “ordinary and natural meaning” and confirmed that, where multiple purposes have been set out, a s116 request will fail if any of those purposes are improper. The Court will not make a distinction between the purpose of a request and the manner in which it is to be effected but will consider whether the overall purpose is proper.

In Fox-Davies v Burberry Plc, the issue came for consideration before the Court of Appeal again.

The appellant in that case operated a business of tracing lost members of companies and, for a fee or commission, reuniting them with their shares. In furtherance of this business, he requested a copy of the Burberry register of members pursuant to s116 CA 2006. This was refused by Burberry, who applied under s117 CA 2006 for a direction that it should not comply.

At first instance, Burberry’s application was granted and this decision was upheld by the Court of Appeal (albeit for different reasons), which approved the decision in Burry & Knight and gave further guidance on the question of proper purpose and how the court should assess it.

The Court of Appeal held that first, the court must make a finding of fact as to what the requestor’s true purpose is, based on the evidence before it. Secondly, the Court must make an evaluative, objective judgment as to whether that purpose is proper.

The Court of Appeal confirmed that whether a purpose is proper or improper does not depend upon whether it is in the interests of shareholders overall, and there is no clear distinction to be made between whether a request is made by a member or non-member (save that a non-member must pay a fee for access). A proper purpose does not have to be confined to one relating to shareholder democracy (for example, in order to communicate regarding matters relevant to the company).

Interestingly, the Court of Appeal had mixed views on the question of whether commercial exploitation of the information was proper. Lord Justice David Richards held that the fact that the applicant wished to extract a fee from traced lost members before ultimately disclosing the asset to which they were entitled rendered his purpose improper – i.e. because his purpose in using the statutory machinery was to gain financial advantage.

Sir Patrick Elias, however, found that it was not the fact of making a commercial profit which made the purpose improper, but that the applicant had not provided information about what commercial charges he intended to impose. This failure left the Court unable to be satisfied that there was no risk the shareholder might be exploited in a manner which would render the purpose improper.

Conclusion

The state of the law in this area remains unsatisfactory as reported cases are scarce and the jurisprudence thus undeveloped. The ICSA guidance provides useful examples of potential improper purposes but even these do not answer the question before the courts as to whether any stated purpose is the true one; moreover, the courts have not been afraid to disagree with that guidance.

In the meantime, companies need to remain alert to the possibility of a s116 request being submitted and to the need to respond urgently.


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