We acted for a director defending a High Court unfair prejudice petition arising from the breakdown of a business relationship between equal shareholders. A key battleground was the Petitioner's attempt to obtain extensive disclosure and digital evidence in support of a broad range of allegations. Through a carefully planned litigation strategy, we successfully restricted the scope of those investigations, reducing costs, narrowing the issues in dispute and significantly strengthening our client's position.
Background
The Company was incorporated in 2011 by two founding directors, our client and the Petitioner, who each held a 50% shareholding. Having worked together before establishing the business, the petitioner argued that the relationship amounted to a "quasi-partnership", giving rise to additional obligations based on mutual trust and confidence.
Following a deterioration in the relationship between the parties, our client felt they had little option but to resign as a director and establish a new business in order to continue earning a living.
The Petitioner subsequently presented an unfair prejudice petition alleging that our client was competing directly with the Company, using confidential information and acting in breach of continuing duties owed to the Company. The relief sought included an order requiring our client to sell their shares at a valuation reflecting the alleged misconduct.
For our client, these were serious allegations which, if successful, could have resulted in a forced sale of their shareholding on unfavourable terms.
Key Legal and Strategic Issues
The petition raised a number of significant legal and practical challenges:
Alleged breaches of directors' duties – The petitioner claimed our client continued to owe duties to the company and had acted in breach of those obligations.
Quasi-partnership allegations – It was alleged that the relationship between the parties created equitable obligations extending beyond the company's formal constitutional arrangements.
Confidential information claims – Allegations were made that our client had improperly used confidential company information after leaving the business.
Digital evidence and forensic investigations – The petitioner sought extensive access to our client's personal devices, cloud-based systems, and related digital records.
Broad disclosure requests – The petitioner also sought disclosure relating to commercial activities undertaken by our client's new business.
Proportionality and costs – If granted, the requests would have significantly expanded the scope of the proceedings, increased costs and created a substantial burden on our client.
A key objective was therefore to prevent the case becoming unnecessarily broad and expensive whilst ensuring the petitioner was required to properly identify and justify the allegations being pursued.
Our Approach
A key battleground in many unfair prejudice petitions is disclosure. In this case, the Petitioner sought extensive access to our client's devices, cloud-based systems, and commercial activities in an attempt to obtain evidence supporting a wide range of allegations.
We considered this approach to be disproportionate and strategically flawed. Allowing such broad disclosure would have significantly increased costs, expanded the scope of the dispute and potentially enabled the Petitioner to build allegations that were not properly evidenced at the outset.
Our strategy was therefore to require the Petitioner to clearly identify the allegations being pursued and justify the extensive disclosure they were seeking. We successfully argued that the proposed digital forensic exercise amounted to a speculative fishing expedition and persuaded the court to adopt a far more limited approach, restricting any expert investigation to the specific issue of whether our client retained access to company data.
We also successfully opposed the Petitioner's attempts to obtain wide-ranging disclosure concerning our client's new business activities. The court agreed that a much narrower and more targeted approach was appropriate, requiring the Petitioner to identify specific companies and categories of commercial activity rather than undertaking a broad investigation prior to proceeding further with their Petition towards trial.
By narrowing the scope of disclosure and forcing the Petitioner to properly define the case being advanced, we placed our client in a substantially stronger position. Rather than conducting the wide-ranging investigations originally sought, the Petitioner was left having to pursue serious allegations within a much narrower evidential framework.
