CAS (Nominees) Ltd v Nottingham Forest plc [2002] BCC 145

Minority shareholders petitioned under s.459 Companies Act alleging unfair prejudice when the company allowed a third party to invest in a subsidiary rather than the company. The court ordered disclosure of legal advice documents, holding that legal professional privilege does not protect documents created for company administration purposes in shareholder disputes.

Facts

The Claimants, CAS (Nominees) Limited and Aon Pension Trustees Limited, held 24.3% of Nottingham Forest Plc’s share capital. In July 1999, Mr Nigel Doughty entered an agreement to subscribe £6 million for shares in the subsidiary Nottingham Forest Football Club Limited, with an option for further shares giving him control. The Claimants alleged this mechanism was adopted to deny shareholders protections under the Companies Act and City Code, and that the shareholder circular approving the transaction was misleading, particularly regarding an alternative approach from Mr Scardino.

Issues

Primary Legal Issue

Whether documents created by the Company’s lawyers in connection with the disputed transaction were protected from disclosure by legal professional privilege, or whether minority shareholders were entitled to production of such documents in section 459 proceedings.

Secondary Issue

Whether the Woodhouse rule on disclosure applied differently to public limited companies with substantial shareholdings compared to small private companies.

Judgment

Evans-Lombe J ordered disclosure of the documents, rejecting the Defendants’ claim of legal professional privilege. The judge applied the fundamental rule from Woodhouse, as summarised:

“the principle was that if people had a common interest in property, an opinion having regard to that property, paid for out of the common fund, i.e. company’s money or trust fund, was the common property of the shareholder cestuis que trust. But where the parties were sundered by litigation such an opinion obtained by one of them was privileged.”

The court held that in section 459 proceedings, the company is only a nominal party, with the substance being a dispute between shareholders. Citing Simonds J in W Dennis and Sons v West Norfolk Farmers Limited:

“It must never be forgotten that the rules as to privilege are strict, and, as has so often because said, privileges is not to be extended.”

Rejection of Size-Based Distinction

The court rejected the argument that the Woodhouse rule should not apply to PLCs:

“Nothing in the Woodhouse case or the subsequent authorities down to and including the Hydrosan case is supports the proposition that the rule is to be differently applied depending on the size and importance of the company concerned.”

The judge noted the rule was based on trust law principles, with directors owing fiduciary duties to shareholders regardless of company size.

Implications

This decision confirms that in unfair prejudice petitions under section 459, legal advice obtained by a company regarding transactions challenged by shareholders is not protected by legal professional privilege. The rationale is that such advice relates to administration of company affairs for the benefit of all shareholders, not hostile litigation against the company itself. The rule applies equally to public and private companies. This has significant implications for corporate governance, as directors cannot shield legal advice concerning disputed transactions from minority shareholders bringing section 459 proceedings.

Verdict: The court ordered disclosure of the documents sought by the Claimants. The documents were not protected by legal professional privilege as they were created for the purpose of procuring company actions rather than defending against hostile litigation, and the Woodhouse rule entitled shareholders to see such documents in section 459 proceedings.

Source: CAS (Nominees) Ltd v Nottingham Forest plc [2002] BCC 145