UTB LLC -v- Sheffield United and others [2019] EWHC 914 (Ch) (09 April 2019)

In this case (involving an interlocutory application challenging a party’s claim to privilege and seeking further disclosure) the court considered the application of the new practice direction 51U (‘PD51U’) relating to the ‘disclosure pilot for the business and property courts’ (‘the Pilot’) to pre-January 2019 cases.

Factual background

The dispute related to a joint-venture agreement between Sheffield United Ltd (‘Sheffield’) and UTB LLC (‘UTB’), under which a Saudi prince invested £10 million in The Sheffield United Football Club Ltd (‘FC’) through UTB and gaining 50% of the shares in Blades Leisure Ltd (‘Blades’) that owned all the shares in FC, which in turn ran the football club of that name.

By the end of 2017, relations between the owners of Sheffield and UTB had deteriorated, and Sheffield sought the dissolution of the joint venture. Sheffield served notice and offered to buy UTB’s shares in Blades for the low price of £5 million, however only because it was expecting UTB’s counter-notice to buy Sheffield’s shares at the same price. If Sheffield had accepted UTB’s offer, then UTB would have owned more than 75% of the shares, which would have triggered the exercise of obligatory property call options, benefiting greatly Sheffield (the owner of the under-rented long leased properties used by the FC) and compensating the low price of the offer. However, UTB transferred 80% of its own shareholding to another corporate vehicle before serving the counteroffer to Sheffield, so the property call options did not have to be exercised. If effective, this manoeuver would mean that UTB was entitled to purchase all Sheffield’s shares at a low price, and retain the benefit of the under-rented long leases of the properties, with Sheffield not being able to realise their full value, and being at a loss when it came to the FC.

UTB issued proceedings claiming specific performance of the share sale at £5 million and a declaration that the property call options were not exercisable. Sheffield defended that claim and counterclaimed a declaration that UTB was obliged to cause FC to exercise the call options. Sheffield also brought an additional claim against UTB and its owners for damages for lawful or unlawful means conspiracy. These would represent the loss of value of Sheffield’s properties in the event that UTB’s claim succeeded. More recently, Sheffield had issued a petition seeking relief for unfairly prejudicial conduct.

As its main position, Sheffield sought to defeat UTB’s claim to its shares, and to acquire UTB’s shares, with the result that Sheffield either remained a 50% shareholder or took full control of the team. Orders for standard disclosure were made (under CPR Part 31) for the upcoming litigation before January 2019 and prior to the commencement of the Pilot.

The court had to consider (i) whether it should apply the provisions of PD51U, (ii) whether Sheffield should be permitted to amend some of its pleadings and (iii) requests for further disclosure including correspondence between the prince and a lawyer who was also a director of Blades over which UTB was asserting legal privilege.

(i) Application of the Pilot

Both Sheffield and the UTB parties had assumed that CPR Part 31 applied to Sheffield’s application for disclosure because an order for standard disclosure had already been made before 1st January 2019, which was the date that the Pilot came into force.

The Chancellor of the High Court noted that the Pilot applied from 1 January 2019 to existing and new proceedings in the Business and Property Courts (PD51U at paragraph 1.2).

The Pilot was deliberately put in place without transitional provisions so that it would apply to all existing proceedings (unless specifically excluded) even where an initial disclosure order had been made before its commencement. To say that the Pilot would not disturb a pre-existing order was quite different than to say that the Pilot was not applicable to proceedings in which pre-Pilot orders had been made, only the former being correct. The judge confirmed that the White Book commentary (at CPR Part 51.2.10 stating that the Pilot did not apply to any proceedings where a disclosure order had been made before the Pilot came into force unless that order was set aside or varied) was incorrect and the Pilot did apply in all existing and new proceedings in the Business and Property Courts.

The next question was how the new PD51U should be interpreted. The judge held that the standard disclosure ordered in the case had been interpreted by the parties as if it were Model E wide search-based disclosure, the problem being the parties mistakenly thinking that PD51U did not apply and giving no advance thought to the production of ‘issues for disclosure’ or to the requirements of PD51U in general.

Parties in cases like this, who wanted to apply to the court for extended disclosure under PD51U should give detailed thought to the new rules and specifically to the way in which they would affect their application. The fact that PD51U referred to concepts like extended disclosure and issues for disclosure that did not exist before 1 January 2019, did not make the Pilot any less applicable to cases subsisting in the Business and Property Courts after that date.

Permission to amend

The court allowed Sheffield’s application to amend in part, after citing the Court of Appeal’s analysis in Nesbit Law Group LLP v Acasta European Insurance Company Ltd [2018] EWCA Civ 268, that the court, taking account of the overriding objective, had to balance the injustice to the party seeking to amend if it refused permission, against the need for finality in litigation and the injustice to the other parties, if the amendment was permitted. There was a heavy burden on the party seeking a late amendment to justify the lateness of the application and to show the strength of the new case and why justice required to be pursued. The judge granted permission for certain amendments though permission for others raising new issues or not advancing the central issues in the case were refused.

Assertion of legal professional privilege

The issue arose due to UTB’s assertion of legal advice privilege over certain categories of documents sought by Sheffield. The claims to privilege concerned certain communications with an individual, who was both acting as a lawyer to the Saudi prince and as a director of the joint-venture ownership company during some of the relevant period. The court was asked to inspect two sample, redacted, documents to determine whether privilege had been asserted correctly. The Chancellor was initially very reluctant to allow inspection: the court should be cautious about inspecting privileged documents and alive to the dangers of looking at documents out of context, with that caution applying more so under paragraph 14.3 of PD51U, which provided for a test of necessity. Ultimately, he decided to do so, as it was necessary to ‘cut the Gordian knot’ and to avoid delay. Given that the two redacted documents were Sheffield’s best case on the point, if they were obviously not privileged, it would be possible to see that the disclosure exercise had not been conducted properly. This was necessary for the just disposal of the proceedings; also a reasonable and proportionate course to adopt.

In relation to privilege, the court held that a party claiming privilege did not have to make that claim with particularity in relation to each document for which privilege was claimed. Paragraph 14.1 of PD51U provided that a claim to privilege might be made in a form that treated privileged documents as a class. It was fair to say, however, that particular circumstances might make it desirable for a clear explanation of the claim to be provided.

Most of Sheffield’s criticisms were insubstantial concentrating on small points that did not seem to add up to very much. In a case of that size, it was always possible to pick holes, though the latter did not make out a good case in support of the proposition that privilege had been wrongly claimed.

As to whether the individual was acting as a ‘man of business’ rather than a lawyer at the relevant times, the court applied the test outlined in Three Rivers District Council -v- Governor and Company of the Bank of England (No 6) [2004] UKHL 48, according to which it was necessary to decide whether communications were conducted under a relevant legal context, relating to ‘the rights, liabilities, obligations or remedies of the client either under private law or under public law’. It was solely in such circumstances that a communication was privileged. This could not be done without seeing the documents and it was therefore, in that case, useful for the judge to have seen the redacted documents.

After examining the evidence and analysing the issues involved, the court held that UTB had done their best to carry out the disclosure exercise properly and there was no basis for suggesting that they were applying the wrong test. Sheffield’s assertions over privilege and further disclosure requests were dismissed.

Comment

This decision makes clear that the Pilot applies to all existing and new proceedings in the Business and Property Courts, even where a disclosure order has been issued already under the previous regime.

The judge noted that the introduction of the Pilot was intended to effect a culture change. The Pilot was not simply a rewrite of CPR Part 31, but operated along different lines driven by reasonableness and proportionality, with disclosure being directed specifically to defined issues arising in the proceedings.

As to extended disclosure the judge warned that it was not something to be used as a tactic or weapon in hard fought litigation – it was all about the just and proportionate resolution of the real issues in dispute.