High Court finds "control" for the purposes of disclosure includes third party documents that the litigating party can access under a standing consent short of an enforceable right

In a recent decision, the High Court found that the documents of two of the defendant's subsidiary companies were within its "control" for the purposes of disclosure: Pipia v BG Group Ltd [2020] EWHC 402 (Comm).

The decision shows that a party can have control over the documents of its direct or indirect subsidiaries (or some other third party) even if it does not have a presently enforceable legal right to obtain the documents. It is sufficient that there is an arrangement or understanding, whether or not legally enforceable as a contract, that in practice provides the parent with a right of access. This is consistent with previous cases that have taken a broad view of control for the purposes of disclosure (see for example this blog post).

The decision is of particular interest in finding that, to fall within this principle, there is no need for the litigating party to have wholesale access to the third party's documents; the arrangement or understanding may relate to a more restricted class of documents, in which case only those documents will be within the party's control. This is, however, distinct from a mere finding that the third party would probably provide documents if asked to do so. That does not, in itself, justify a finding of control.

Although the decision was reached under the rules for the disclosure pilot currently progressing in the Business and Property Courts, the decision is clear that the same principles apply in non-pilot cases.

The judgment contains a number of interesting comments as to the circumstances in which the court may draw adverse inferences, either regarding the existence of a control arrangement over documents or as to the underlying merits of the case. The decision suggests that:

• In some circumstances, it may be appropriate to draw adverse inferences to the effect that a litigating party has control over a third party's documents due to its failure to make "sensible requests" for documents from that party. The reasoning is that the reluctance may stem from the knowledge that the third party would respond in a way that demonstrated the existence of an arrangement or understanding amounting to control.
• If a third party's documents are not within the control of a litigating party, there is no obligation on the litigating party to ask the third party to provide documents for disclosure, even if the third party would probably provide the documents. However, depending on all the circumstances of the case, a failure to request the documents may mean the court is justified in drawing an adverse inference going to the merits of the case, either generally or on some particular issue.
• Where the court finds that a control arrangement existed but has been terminated, and again depending on all the circumstances, the party which has terminated the arrangement may be at risk of an inference being drawn that the reason for termination was because the third party held documents that would be unhelpful to the party's position.

Finally, the decision contains interesting commentary on one of the disclosure models under the pilot, "Model C", which is defined as "disclosure of particular documents or narrow classes of documents relating to a particular Issue for Disclosure", by reference to requests set out in the parties' Disclosure Review Document or otherwise defined by the court. The judge expressed the provisional view that, where Model C disclosure is ordered, any documents a party locates which fall within the scope of the requests must be disclosed, whether or not they are relevant to the issues in the case. If that approach is followed in future cases, it will be crucial for parties to take care in seeking to formulate and agree any Model C requests.

Background

The defendant, BG UK, applied for a declaration that, for the purposes of disclosure, it did not control documents held by two of its subsidiaries, referred to in the judgment as (i) BG Georgia, a wholly owned subsidiary of BG UK, and (ii) BoG, which is 79.75% owned by BG Georgia (together the "Subsidiaries").

Under the disclosure pilot practice direction (PD51U) "control" in the context of disclosure is defined to include "documents: (a) which are or were in a party's physical possession; (b) in respect of which a party has or has had a right to possession; or (c) in respect of which a party has or has had a right to inspect or take copies". This is similar to the definition of control at CPR 31.8 for cases which fall outside the pilot.

The claimant initially brought proceedings against BG UK and seven other defendants, including the Subsidiaries, but the claims against the other seven defendants were discontinued in April 2018.

By two letters dated 30 March 2018 (the "30 March Letters"), the CEO of BG UK wrote to each of the Subsidiaries requesting that they provide BG UK with "all the documents pertaining to [the Claim] as requested by us or our advisors". The letters were countersigned to indicate agreement on behalf of the Subsidiaries.

A number of documents were sought by BG UK and provided by the Subsidiaries, and it was accepted that those documents were effectively then within BG UK's control for the purposes of disclosure. The application concerned documents held by the Subsidiaries which had not in fact been provided to BG UK.

In June 2019, BG UK wrote to the Subsidiaries requesting that BG UK be provided with open access to their documents and data so that BG UK's solicitors could search for documents relating to the issues in dispute. BoG responded that it was unable to fulfil BG UK's request due to Georgian law relating to bank secrecy, which meant it could disclose information only in specific cases and to specific recipients provided for in legislation. BG Georgia also replied that it was "unable to comply" with the request.

Decision

The High Court (Andrew Baker J) held that BG UK had control over the Subsidiaries' documents to the extent that they fell within a standing consent to provide documents relating to the claim on request, as put in place as a result of the 30 March Letters.

The principles relating to control of a subsidiary's documents

The judge noted that the parties were "mostly agreed" on the correct approach where it is alleged that a parent company controls documents held by its direct or indirect subsidiaries. The starting point is that the parent does not exercise control over such documents merely by virtue of its shareholding: Lonrho Ltd v Shell Petroleum Co Ltd (No 1) [1980] 1 WLR 627. A parent would however have control for the purposes of CPR 31.8 and PD 51U where:

1. the parent company has a presently enforceable legal right to obtain the documents from its subsidiary; or
2. there is an existing arrangement or understanding, whether or not legally enforceable as a contract, that in practice provides the parent with a right of access to documents held by its subsidiary.

In relation to the second of these, however, the parties disagreed as to whether the right of access would have to be "free and unfettered", and if so what that meant.

Free and unfettered access?

The defendant submitted that, to amount to "control", a standing consent must grant unrestricted access to a third party's documents so that the litigating party can go through them to identify relevant documents. The judge rejected that submission.

He referred to two cases that were relevant to this point. In the first, Schlumberger Holdings Ltd v Electromagnetic Geoservices AS [2008] EWHC 56 (Pat), the defendant argued that the claimant had control over the documents of other companies in its corporate group. The evidence showed that, in general, group companies would provide documents requested by the claimant except where the documents were especially commercially sensitive, in particular corporate acquisition documents, or the requests were onerous. Floyd J held that the documents were within the claimant's control, saying:

"…[W]hat happens where the evidence reveals that the party has already enjoyed, and continues to enjoy, the co-operation and consent of the third party to inspect his documents and take copies... and where there is no reason to suppose that that position may change? Because that is the factual situation with which I am confronted here. ... My decision depends on the fact that it appears from the evidence that a general consent has in fact been given to the claimant to search for documents properly disclosable in this litigation, subject only to the caveats … concerning corporate acquisition documents and unreasonably onerous requests."

In the second case, Ardila Investments v ENRC [2015] EWHC 3761 (Comm), Males J referred to Schlumberger and found that documents held by two of the defendant's subsidiaries in Ardila were not within its control in the necessary sense, on the basis that it did not have free access to the subsidiaries' documents. Past cooperation as to compliance with specific requests did not amount to evidence that the defendant had the necessary control, Males J said, as it did not indicate that the defendant would be "entitled to send its solicitors into [the subsidiaries'] premises and to insist on searching [their] computers".

In the present case, Andrew Baker J said it was important not to read too much into that quotation from Males J's judgment in Ardila. In both Schlumberger and Ardila, what was alleged to exist was an arrangement granting general access to the third party's documents. That did not mean there could not be "control" unless there was a grant of that kind of wholesale access to documents. There can, the judge said, be "control" that extends to a single document only.

A general control arrangement prior to the 30 March Letters? 

The claimant submitted that there was a general control arrangement between BG UK and the Subsidiaries that was in place prior to and independently of the 30 March Letters, or alternatively that those letters created the necessary control arrangement.

The judge rejected the first of these submissions, agreeing with BG UK that the 30 March Letters were inconsistent with the notion that there was a pre-existing standing consent.

He did not accept the claimant's submission that the court should draw an adverse inference against BG UK as to the existence of a control arrangement, due to their failure to make "sensible requests" for documents from the Subsidiaries, in particular following on from the responses to the June Letters. He accepted that such a failure may justify an adverse inference that there is in fact a right of access, on the basis that the failure to make sensible requests may stem from the knowledge that they would be responded to in such a way as would evidence the existence of that right. On the facts of this case, however, he did not accept that BG UK's failure to press the point was only sensibly to be explained by a fear that it would generate evidence showing that some such arrangement existed.

Andrew Baker J also commented that a conclusion that a third party would probably provide documents, if asked by the litigating party to help, does not mean that control has been established. Absent control, a litigating party is under no obligation to ask a third party to provide documents. However, he said, depending on the circumstances, it may be appropriate to draw an adverse inference going to the merits (either generally or on some particular issue or issues) on the basis of the failure to seek that assistance.

Effect of the 30 March Letters

The judge accepted the claimant's fallback argument that the 30 March Letters created a control arrangement. By those letters, BG UK sought and obtained the Subsidiaries' agreement to provide all documents pertaining to the claim that it might request. Andrew Baker J commented:

"It was a standing promise and, in line with the authorities, it does not matter whether it would be enforceable as a contract. It was thus a standing consent... to provide documents on request."

Under the terms of the standing consent, it was necessary for BG UK to identify and request documents that the Subsidiaries could provide to it as relevant to the claim. But that did not affect the quality of the consent given, which was a standing consent giving BG UK unfettered access to such documents on request.

That was, in the court's judgment, "control" for disclosure purposes under CPR 31.8 or CPR PD 51U, as regards the documents covered by the arrangement.

Although the control arrangement constituted by the 30 March Letters was put in place when the Subsidiaries were co-defendants to the Claim, it was not expressed to be conditional on the claim continuing against them and was not terminated when the claim was discontinued against them. Further, the judge commented, "for it to be terminated now would risk an inference being drawn in due course that it was terminated, in the face of BG UK's disclosure obligations, because [the Subsidiaries] held documents not provided to BG UK that would be unhelpful to BG UK's defence of the Claim".

The June 2019 Letters proposed a different control arrangement, allowing open access to the Subsidiaries' documents, so that they could be searched and disclosed as appropriate. If the Subsidiaries had consented to that arrangement, it might have superseded the 30 March Letters. However, there was no suggestion that the arrangement put in place by those letters was to be terminated if the new proposed arrangement was not accepted. Accordingly, the court concluded that that arrangement had not been terminated.

The effect on the appropriate disclosure order

The judge said that, while it would be a matter for a future CMC, his provisional view was that the appropriate disclosure obligation on BG UK, deriving from the control arrangements under the 30 March Letters, would be to make reasonable and proportionate requests to the Subsidiaries for documents falling within that arrangement. That might, he said, lend itself most naturally to the adoption of "Model C" for disclosure of those documents, so as to identify the document requests that should be made to the Subsidiaries.

The judge commented that, under Model C, any documents located upon a reasonable and proportionate search that fall within the scope of a Model C request will be disclosed; there is no further restriction based on relevance or some other criterion. He said:

"Model C Requests therefore should be defined with that end result in mind; and a request for a disclosing party to search for "any or all documents relating to" a topic is not, to my mind, a Model C Request at all...".

In the present case, the draft Model C request which appeared to have been provisionally agreed, subject to the question of control, sought disclosure of any emails, Word documents, etc initiated or received by certain individuals in a defined period "in relation to" a particular issue. The judge said his provisional view was that this was not a competent Model C request at all:

"Rather, it is a broadly-defined category of documents that it is envisaged will be collected together for review against some disclosure standard (unstated, but perhaps intended to be the Model D standard), the results of which will define what is finally disclosed out of that category of documents."

In the run-up to the CMC, the parties would need to engage in constructive dialogue to define proper Model C requests that could then be made by BG UK to the Subsidiaries pursuant to the 30 March Letters, assuming that Model C was to be adopted.