Saxon Woods Investments Limited v Francesco Costa (Re Spring Media Investments Limited)

Applications for extended disclosure under Practice Direction 57AD require a focused, fact-sensitive assessment. The applicant must show that the proposed disclosure is reasonable and proportionate. For an additional order under paragraph 18, it must also be necessary for the just disposal of the proceedings. The court must consider the pleaded case as it stands, including substantial amendments, and may adopt a pragmatic approach where disclosure has revealed matters requiring further investigation. That does not justify a general search for documents or a “no stone unturned” exercise.

A company joined as a nominal respondent to a section 994 petition ordinarily cannot assert privilege against its shareholders. The exception for hostile litigation applies only where the threatened proceedings are against the company in the true sense. A section 994 petition or derivative claim directed at alleged wrongdoing by shareholders or directors remains, in substance, litigation between those protagonists, even where the company is a necessary party or the allegations include breaches by the company.

Saxon Woods Investments Limited presented a section 994 petition concerning Spring Media Investments Limited. It alleged that Francesco Costa, a director and chairman, had frustrated an agreed exit process and had acted in breach of duty. Costa denied liability and advanced allegations concerning Saxon Woods’ conduct and the role of its director, Mr Loy.

Before trial, Saxon Woods and Costa applied for further disclosure following substantial amendments to their pleadings. The Company, which took a neutral position in the petition, also asserted privilege over material withheld from Saxon Woods. The court had to determine the appropriate disclosure orders and whether the threatened or contemplated proceedings constituted hostile litigation against the Company so as to engage the privilege exception.

1. Disclosure applications. The distinction between a failure to comply with an existing order under paragraph 17 of Practice Direction 57AD and an application to vary or supplement disclosure under paragraph 18 did not materially affect the present analysis. The proposed orders had to be reasonable and proportionate. An order under paragraph 18 also had to be necessary for the just disposal of the proceedings.
2. The court must begin with the pleaded case as amended. Where amendments materially expand the relevant period, individuals involved or issues for trial, further searches may be ordered if they relate to that case and satisfy the statutory and procedural tests. The court should take a pragmatic and flexible approach, particularly where there is information asymmetry and serious allegations of misconduct, but must avoid an unrestricted “no stone unturned” search.
3. Saxon Woods established the threshold for further disclosure. Orders were made for additional searches, wider date ranges and disclosure concerning the alleged exit process, the involvement of additional individuals, and the financing of Costa’s defence. Costa’s proposed new issue 1 was refused as duplicative, insufficiently connected with the pleaded defence and disproportionate in its proposed date range. A more focused order was made in relation to existing disclosure issues. New issue 2 was also narrowed to the pleaded period and to communications and evidence concerning control and beneficial interests in Saxon Woods.
4. Privilege. The general rule is that a company cannot assert privilege against its shareholders. The exception applies only where the shareholder is engaged in hostile litigation with the company in the true sense. That question requires an objective analysis of the substance of the threatened proceedings, not merely the fact that the company is named as a respondent, that relief may affect it, or that its advisers considered litigation possible.
5. A section 994 petition and a derivative action directed at alleged wrongdoing by directors or shareholders are not hostile proceedings against the company. The same conclusion generally applies where the allegations include breaches of a shareholders’ agreement or articles, or where an application for delivery up of documents is sought as interim relief in support of such proceedings. The correspondence had to be assessed as a whole, including earlier letters to which later letters referred.
6. The Company therefore failed to establish the privilege exception. Disclosure was ordered, including material concerning its advice and response to the threatened section 994 and derivative proceedings. The Company’s participation in opposing disclosure was given reduced weight because it was a neutral, nominal party.

Not an appeal. The judgment determined interlocutory applications for further disclosure and privilege in advance of the listed trial of the section 994 petition.