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

Summary of legal principles and grounds for decision:

The court considered rival applications for extended disclosure under Practice Direction 57AD (paragraphs 17 and 18) in the context of an amended and re-amended pleaded case in a section 994 unfair prejudice petition. The judge applied the two-stage approach in paragraph 17 (identify any failure to comply and then consider reasonable and proportionate curative orders) and the necessity test in paragraph 18 (whether variation of extended disclosure is necessary for the just disposal of the proceedings).

The court concluded that the re-amended pleadings expanded the relevant date ranges and the classes of persons and entities potentially privy to the alleged misconduct, so additional targeted disclosure (including extended date ranges, new search terms and an expert enquiry about a disputed email account) was reasonable, proportionate and necessary for trial. The court directed specific further searches and disclosure (with agreed modifiers to limit scope) and permitted issue-specific disclosure about the company’s decision to fund directors’ legal costs/indemnity.

On privilege the court held that a company cannot ordinarily assert privilege against its shareholder and the asserted exception (where there is hostile litigation by the shareholder against the company) did not apply. The correspondence relied on demonstrated threats of section 994 and derivative proceedings against the alleged wrongdoers rather than hostile litigation against the company in the true sense; accordingly the company could not withhold the relevant legal advice on privilege grounds.

Background and parties:

This is a first instance, contested hearing of two interlocutory applications for extended disclosure brought in the course of a section 994 petition. The petitioner, Saxon Woods, alleges that the chairman and director, Mr Costa, and others frustrated the contractual Exit process under clause 6.2 of the Shareholders' Agreement and/or breached fiduciary duties, conduct said to be unfairly prejudicial. Saxon Woods seeks a buy-out order; many respondents are shareholders who did not participate. The company was joined as a nominal party and provided disclosure and relied on privilege for some documents.

Nature of the applications:

• Applications for additional/varied extended disclosure under Practice Direction 57AD (paragraphs 17 and 18) by reference to widened date ranges, new search terms and specific categories (including an email account fc@isiholding.com and searches for named individuals and entities).
• An application by the company to withhold documents on privilege against the petitioner on the basis of threatened hostile litigation.

Issues framed:

• Whether further disclosure was required by reason of the re-amended pleadings and, if so, whether proposed orders met the PD57AD tests of necessity, and reasonable and proportionate burden.
• Whether the company could assert legal professional privilege against a shareholder by reason of threatened or contemplated hostile litigation against the company.

Court’s reasoning and findings:

• The re-amended pleadings significantly enlarged the scope of the factual case (earlier relevant dates, more persons and a greater role for Jefferies). Where disclosure to date did not cover the issues now pleaded it was reasonable and proportionate to order further targeted disclosure to assist the trial judge. The court rejected characterising the applications as mere fishing and accepted that the disclosed material and pleaded allegations justified additional narrowly-tailored searches (with modifiers to limit burden) and extended date ranges where pleaded. The court made specific orders: expert enquiries to attempt recovery of the disputed email account covering 1 July 2017 to 7 November 2018; additional keyword searches (including particular person and project names, with modifiers); extended date ranges for specified issues (notably bringing some searches back to 1 September 2017 where the re-amended petition pleaded that start); and Model C/D style disclosure in certain discrete areas (for example, communications about indemnity/defence funding).
• The court refused to make the wide new Issue 1 sought by Mr Costa because it duplicated existing directed issues and sought an overly broad date range (1 March 2019 to 30 April 2021) that was not supported by the pleaded case. The court granted a more limited alternative (additional targeted keywords relevant to issues 26–28 within the pleaded date range). New Issue 2 (on control/beneficial ownership of Saxon Woods) was allowed in a narrower, focused form limited to the pleaded period and limited categories of communications and evidence of beneficial/economic interest, with confidentiality safeguards as appropriate.
• On privilege the court applied established authorities (including Re Hydrosan, CAS Nominees, Arrow Trading and others) and held that threatened section 994 petitions and derivative claims are not "hostile litigation against the company in the true sense"; subsequently the company may not assert privilege against its shareholders on that basis. The letters relied on by the company were read objectively and in context and were held to evidence threatened claims against directors/shareholders (section 994 and derivative claims), not hostile litigation against the company, so the company’s privilege claim failed for the relevant documents and disclosure was ordered.

The judgment emphasised proportionality and practicality in tailoring further disclosure and that privilege rules are to be strictly applied where the company is only a nominal defendant in shareholder disputes.

Application allowed in part. The court made a series of tailored further disclosure orders under Practice Direction 57AD (including an expert enquiry about the fc@isiholding.com account for 1 July 2017 to 7 November 2018, additional keyword searches with modifiers, and extended date ranges for certain issues), refused the overly broad new Issue 1 sought by the First Respondent but granted a narrower alternative, and ordered limited disclosure on the control of Saxon Woods. The court held that the company could not assert legal professional privilege against its shareholder on the basis relied upon because the correspondence showed threatened section 994 and derivative proceedings against directors/shareholders rather than hostile litigation against the company in the true sense; consequently the company’s privilege assertion failed for the relevant material.