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Published 14 July 2016
In Destiny Investments (1993) Ltd and another v TH Holdings Ltd and another  the High Court granted a third party disclosure order requiring auditors of a company to disclose confidential client documents relevant to a dispute between shareholders.
Destiny Investments (1993) Ltd (Destiny) and T H Holdings Ltd (THH) were joint, 40/60, shareholders of a joint venture company (JV). Destiny, the minority shareholder, brought unfair prejudice proceedings under s994 of the Companies Act 2006 on the basis that JV's affairs were being conducted in a manner which was prejudicial to the interests of members generally.
Destiny's allegations against THH were that: (i) ownership of a subsidiary had been wrongly removed from JV's control; (ii) THH had renegotiated JV's borrowings to the company's detriment; (iii) THH had issued more shares to itself, diluting Destiny's shareholding from 40% to 13%; and (iv) THH had incurred various costs and allocated them to JV, creating substantial debt.
The principal relief sought by Destiny was for THH to buy out its interest at an appropriate valuation. To achieve this, Destiny sought disclosure of trial balances and ledgers and the auditor's working papers in preparation of JV's accounts. THH denied that such documents existed and accordingly, Destiny sought disclosure directly from JV's auditors, KPMG.
KPMG, which was not a party to the proceedings, agreed that it would provide disclosure on a narrowly defined basis either with THH's consent or by court order. THH refused to give consent on the basis that the documents were not relevant and on confidentiality grounds.
A party to a dispute is able to seek an order for disclosure against non-parties. However, the applicant must establish that:
Ordering disclosure against non-parties is the exception rather than the rule and hence the court will exercise this discretion with caution.
The court considered that the documents sought by Destiny were relevant and material to the dispute as Destiny needed to be able to ascertain whether JV's audited accounts accurately reflected the position between JV and its subsidiary companies. The documents were also necessary to obtain a valuation of JV.
The court also considered that the class of documents requested were unambiguous and sufficiently narrowly defined. Given that THH had initially denied the very existence of the documents, and then refused to consent to their disclosure by KPMG, the court was satisfied that disclosure was necessary in order to dispose fairly of the claim.
THH's claim of confidentiality was also not persuasive. Firstly, while confidentiality may be a "highly material consideration" in ordering disclosure, it is not in itself a bar to disclosure. Secondly, the documents, records of which might be kept on the audit files, belonged to JV or its subsidiaries, and the parties to the dispute were the only shareholders of the companies in the group.
As a result, the court granted the third party disclosure order.
The judgment demonstrates that simply asserting confidentiality may not be sufficient for a non-party to see off a request for disclosure of client documents.
Hence auditors and other professional advisers should take note that they may be subject to an order for disclosure even where they are not a party to proceedings, their own conduct is not in issue, they have had no contractual relationship with the party seeking disclosure and the documents produced were confidential.
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