The court has handed down written judgment in a case where it granted a third party disclosure order that auditors should disclose company documents that were the subject of dispute between shareholders, former joint venture partners.

Background

The third party disclosure application to court was made in connection with a petition under section 994 Companies Act 2006, which allows a company member to request the court to make such order as it thinks fit for giving relief where that member considers the company’s conduct to have been unfairly prejudicial. 

In this case, the company had acquired a number of subsidiaries. The applicants made a number of allegations, including that their shareholding had been diluted unfairly and that valuations used in the transactions were unexplained. The applicants wanted a valuation of the company so that the majority shareholder could be obliged to acquire the applicants’ shares at an appropriate price. The applicants sought disclosure of any trial balances or ledgers relating to relevant transactions and the preparation of company accounts linked to the transactions. The company denied that these documents existed. 

The applicant petitioners therefore applied for non-party disclosure against the respondent auditing firm (KPMG), which had expressed willingness to provide disclosure, on a narrowly defined basis, either with the consent of its clients (which was not granted) or by court order. The company and its directors opposed the disclosure order on the basis that the documents sought would not be relevant.

Issues

The court set out the test that had to be satisfied for the disclosure order to be granted: the documents were likely to support an applicant's case or adversely affect the case of another party; the documents sought were clearly and sufficiently identified; and disclosure was necessary for the fair disposal of the claim.

Decision

The court granted the third party disclosure order. It found that the documents were relevant to the impugned transactions. The court was also satisfied that disclosure was both relevant and necessary for the purpose of valuing the company. The documents sought were clearly and sufficiently identified. Given that the respondents to the petition denied the documents' existence, it was clearly necessary and fair that they were disclosed to the petitioners. The issue of confidentiality did not arise as the disputing parties were the only shareholders of the company, to which all the documents in question belonged.

Comment

The decision illustrates the fact that under circumstances where the auditor’s client’s conduct is challenged by a third party, in this case a shareholder, the auditor may be ordered to disclose papers to the third party with whom it had no contractual or other relationship. 

Further readingIn the Matter of TPD Investments Ltd sub nom Destiny Investments (1993) Ltd v TH Holdings Ltd [2016] EWHC 507 (Ch)