Canada: Supreme Court considers separate legal personality and action in respect of harms suffered by companies

The Supreme Court gave judgment earlier this month in Brunette v Legault Joly Thiffault, s.e.n.c.r.l., 2018 SCC 55. A summary of the case is available here. By majority, the Court concluded (at para. [51]):

The principles of procedural and corporate law in Quebec bar shareholders from exercising rights of action that belong to the corporations in which they hold shares. Shareholders may institute proceedings, however, if they can demonstrate (1) a breach of a distinct obligation, and (2) a direct injury that is distinct from that suffered by the corporation in question. These requirements reflect the essential principles of civil liability under the C.C.Q. [Civil Code of Québec] and provide shareholders having a direct and personal interest with a means to seek damages against third-party defendants".

Hong Kong: section 729 of the Companies Ordinance (Cap 622)

Judgment was given earlier this week in Ge Qingfu and Others v L & A International Holdings Ltd and Others (17/12/2018, HCMP2222/2016) [2018] HKCFI 2742. This is an important decision on the operation of section 729 ("Court may order remedies") of the Companies Ordinance (Cap 622) that came into force in 2014 (about which, see here). Section 729 is found within Part 14 ("Remedies for Protection of Companies’ or Members’ Interests"), Division 3, of the Ordinance and provides the court with the power to provide remedies in respect of, inter alia, directors' breaches of fiduciary duty. A key issue before the court was the scope of section 729. The trial judge (Mr Recorder Pow SC) stated (at paras. 115 and 116):

... section 729 is a new piece of legislation not to be shackled by its predecessors or forerunners.  I find that the Australian authorities are not applicable to the interpretation and application of our new section 729. I also disagree with the author of the Brief Notes [here, pdf].  My interpretation is consistent with the fact that the title for Division 3 (ie sections 728 to 730) is 'Remedies for others’ Conduct in relation to Companies etc' and the title for section 729 is 'Court may order remedies'.  The Court’s power to grant relief under Division 3 is not confined or parasitic to the Court’s power of granting injunction.  In my judgment, the wordings of section 729 are unambiguous ....".

... this Court has both the jurisdiction and power to award damages in accordance with the terms of that section irrespective of whether the Court would have been prepared to grant any injunction.  In my judgment, damages could be awarded when: (1) an application is made by a member or a creditor to the Court pursuant to section 729; (2) it is established by evidence that the interest of this member or creditor are or have been affected by the relevant conduct identified in section 728(1), (4) and/or (5); and (3) the circumstances are such that the Court finds it just and proper to exercise its power under section 729(1)(b) to order the person (who committed the relevant conduct) to pay damages to 'any other person'.  These circumstances could include those justifying the award of damages in addition to or in substitution for a grant of injunction.

Furthermore, in my judgment, the person to be awarded damages is not even confined to that 'member or creditor' making the application". 

UK: Government announces audit market review (the Brydon Review)

The Government today announced that Donald Brydon, currently the chairman of the London Stock Exchange Group, will lead a review of the quality and effectiveness of the UK audit market: see here. Whilst the review's detailed terms of reference have not been published, the Government's announcement explains that the review has been "tasked with recommending what more can be done to ensure audits meet public, shareholder and investor expectations" and that it will "build on the findings of two parallel reviews ... the independent review by Sir John Kingman of the industry’s scrutiny body – the Financial Reporting Council (FRC); and the Competition and Market Authority’s (CMA) market study looking at the effectiveness of competition in the audit market, both published today".

UK: CMA statutory audit enquiry - draft proposals published

The Competition and Market Authority has today published an update paper as part of its market study of the statutory audit market: see here. Views are sought on proposed remedies including enhanced regulatory scrutiny of audit committees; the introduction of mandatory joint audits; introducing a cap on market share; and requiring the full structural or operational split between audit and non-audit services.

UK: Kingman review proposes new regulator to replace the Financial Reporting Council

The independent review of the Financial Reporting Council - aka the Kingman Review - published its final report today: see here (pdf). The principal recommendation is dramatic but not entirely unexpected: replace the FRC with a new regulator. This new regulator, provisionally called the Audit, Reporting and Governance Authority, is recommended to have the following strategic objective: "To protect the interests of users of financial information and the wider public interest by setting high standards of statutory audit, corporate reporting and corporate governance, and by holding to account the companies and professional advisers responsible for meeting those standards”.

There is, of course, much of interest in the Report. It finds, for example, that the FRC has been an effective custodian of the UK Corporate Governance Code, and the Code is still regarded as "world-leading". But a different view is taken of the UK Stewardship Code, the Report describing it as a "major and well-intentioned intervention" but one that "is not effective in practice".

Alongside the Report, a letter from Sir John Kingman to the Secretary of State for Business, Energy and Industrial Strategy has been published. This letter, available here (pdf), sets out Sir John's view on whether there is a case for fundamental change in who appoints company auditors.