PEL (UK) Ltd Orosi (UK) Ltd & Ors v Shaftesbury Plc

The applicants sought pre-action disclosure under section 33(2) of the Senior Courts Act 1981 and CPR r.31.16 to investigate an alleged improper-purpose exercise of the board’s power to allot shares in breach of fiduciary duty and to obtain documents relating to a December 2017 non-pre-emptive placing. The court applied the jurisdictional thresholds in CPR r.31.16(3) and concluded that categories 2–5 of the proposed disclosure were too wide and would require the respondent to identify documents falling within standard disclosure, thus failing threshold (c). The judge also concluded that the applicants did not satisfy the desirability threshold in r.31.16(3)(d) because the broad, keyword-based and custodial-unfixed searches proposed were unlikely to save costs or achieve settlement and risked being unduly burdensome.

Category 1 (board papers, minutes and directors’ notes relating to the decision to issue non-pre-emptive shares and related matters) alone crossed the jurisdictional threshold, but the court exercised its discretion to refuse pre-action disclosure even as to that limited category because disclosure of the type sought should follow the procedures and discussions required by Practice Direction 31B (custodians, keywords, redaction, confidentiality) rather than be ordered pre-action in the wide form drafted by the applicants.

Background and parties: The respondent is a Main Market listed REIT. The applicants are private companies ultimately owned by Mr Samuel Tak Lee holding about 25.02% of the respondent. On 6 December 2017 the respondent announced a placing of up to 27,885,508 new shares (c.9.98%) at 952p per share. The applicants say the placing was carried out for an improper purpose (to dilute their negative control and to increase the relative shareholding of other shareholders, in particular Norges Bank) and seek pre-action disclosure to investigate and pursue claims for breach of fiduciary duty.

Nature of the application: An application for pre-action disclosure under section 33(2) Senior Courts Act 1981 and CPR r.31.16, seeking five broad categories of documents covering (1) board papers and directors’ notes (15 Oct–31 Dec 2017) and (2) to (5) extensive classes of electronic communications identified largely by keyword searches between certain dates, custodians and third parties (including Norges Bank and joint bookrunners).

Issues framed:

• Whether the jurisdictional conditions in CPR r.31.16(3)(a)–(d) were met, in particular (c) (would the documents sought fall within standard disclosure r.31.6) and (d) (is pre-action disclosure desirable to dispose fairly, assist resolution without proceedings or save costs);
• Whether the classes of documents and the proposed keyword searches were sufficiently limited and reasonable; and
• How the court should exercise its discretion where some limited categories might pass the jurisdictional test.

Court’s reasoning: The court accepted that the applicants and respondent were likely parties to subsequent proceedings (r.31.16(3)(a)–(b) satisfied). The court applied authorities emphasising a two-stage approach (jurisdiction then discretion). It held that categories 2–5 were overbroad, not tied to particular custodians or specific subject-matter limits, and would require the respondent to identify which documents fell within standard disclosure, contrary to authority. The proposed keyword searches were ill-defined and would produce large numbers of false positives (respondent’s initial application of the keywords produced over 15,000 documents). The judge considered the threshold in r.31.16(3)(d) (desirability) was not met because the breadth of the application made it unlikely that pre-action disclosure would save costs or resolve the dispute and risked disproportionate burden. Although category 1 (board papers and directors’ notes) did satisfy the jurisdictional threshold, the court exercised its discretion to refuse pre-action disclosure even as to that category because significant disclosure of the type sought should take place after the parties had engaged in the discussions and protocols required by Practice Direction 31B (limiting custodians, keywords, redaction and confidentiality arrangements).

Procedural posture: First-instance determination of a pre-action disclosure application by Master Teverson; the judgment declines to make the pre-action disclosure order sought.

The application for pre-action disclosure is refused. The judge held that categories 2–5 of the requested disclosure were too wide and did not meet the jurisdictional threshold in CPR r.31.16(3)(c) (they would go beyond what standard disclosure would require) and that the applicants had not shown disclosure before proceedings was desirable under r.31.16(3)(d). Although category 1 marginally met the jurisdictional test, the court exercised its discretion against ordering pre-action disclosure in the wide form sought and indicated that disclosure of this nature should follow the Practice Direction 31B process of pre-disclosure discussions (custodians, keywords, confidentiality and privilege issues).