Parent companies' documents found to be in subsidiaries' control for disclosure purposes

The High Court has found that documents held by the claimants' parent companies, and individuals connected with those entities, were within the claimants' "control" for the purposes of their disclosure obligations in the litigation: Berkeley Square Holdings Ltd v Lancer Property Asset Management Ltd [2021] EWHC 849 (Ch).

This is the latest in a line of first instance decisions which have held a party will have the requisite degree of control over a third party's documents, for disclosure purposes, if there is an arrangement or understanding which means the documents are within the party's practical control, even though the party does not have a presently enforceable legal right to obtain the documents.

The present case is particularly interesting in finding that this principle applies regardless of the nature of the relationship with the third party - so in this case, it meant that a party had control over its parent companies' documents, whereas in the previous cases which have considered the issue the relationship was generally the opposite way around.

The decision emphasises that whether or not there is such an arrangement is a question of fact, and the existence of such an arrangement may be inferred from the surrounding circumstances. Where there is evidence that a third party has previously permitted access to their documents for the purposes of the proceedings, this will be a highly relevant factor - though compliance with a particular request for assistance will not, of itself, be sufficient.

As a practical matter, parties to litigation should bear in mind the risk of the court inferring the existence of a control arrangement of this sort where they have previously had access to a third party's documents for the purposes of the proceedings, but wish to argue that the documents are not in their control. While it seems a control arrangement can be terminated, a court might infer that the reason for termination was because the third party's documents (or remaining documents) are unhelpful to the party's case (see our post on Pipia v BGEO Group Ltd [2020] 1 WLR 2582, here).

Background

The claimants are BVI companies which own or have owned properties in the UK. Their ultimate beneficial owner is His Highness Sheikh Khalifa bin Zayed Al Nahyan, the President of the United Arab Emirates ("Sheikh Khalifa") or, in one case, a family member. The sole shareholder of most of the claimants is a UAE company referred to in the judgment as "Overseas", which is owned by another UAE company, "Circle", which is in turn owned by the Private Department of the President ("PDP"), an office which exists to manage Sheikh Khalifa's personal assets.

The claimants allege that the manager of their London property portfolio, and its directors and holding company, were complicit in a substantial fraud perpetrated on the claimants by their own appointed representative. The defendants deny the allegations, asserting that the claimants knew and approved of the payments said to constitute the fraud.

Disclosure took place in September 2020, but both parties made applications for further disclosure. The present judgment deals with the defendants' application. It addresses various issues including the claimants' arguments that documents held by PDP, Circle, or individuals connected with those entities, are not in the claimants' "control" for the purposes of disclosure.

(The Court of Appeal has recently handed down a separate judgment in this case, in relation to the admissibility of certain "without prejudice" communications which the defendants rely on to support their case regarding the claimants' knowledge: see our blog post on that decision.)

Decision

The High Court (Mr Robin Vos sitting as a High Court judge) found that the documents held by PDP, Circle, and the various individuals connected with those entities, other than Sheikh Khalifa, were in the claimants' control.

The judge noted that the definition of control for the purposes of the disclosure pilot (at paragraph 1.1 of Appendix 1 to PD51U) is the same as the definition in CPR Rule 31.8(2). The authorities dealing with the question of control in non-pilot cases are therefore relevant to the present case, which is proceeding under the disclosure pilot.

As the judge explained, the starting point is that a party will not normally have control over documents held by a third party unless it has a legal right to access those documents. In Lonrho v Shell [1980] 1 WLR 627, for example, the House of Lords made it clear that a parent company does not automatically have control of the documents held by a subsidiary.

In the present case, however, the defendants submitted that, even if the documents were not under the claimants' legal control, they were "under the practical control of the claimants as a matter of factual reality", and this amounted to control for disclosure purposes. The defendants relied on three authorities in support of this submission: Schlumberger Holdings Ltd v Electromagnetic Geoservices AS [2008] EWHC 56 (Pat); North Shore Ventures Ltd v Anstead Holdings Inc [2012] WTLR 1241 (considered here); and Pipia v BGEO Group Ltd (referred to above).

The claimants pointed out that there are no cases in which a subsidiary has been held to have control of documents in the custody of a shareholder or parent. The cases relied on by the defendants were the other way around. In the judge's view, however, there was no reason in principle why there couldn't be an arrangement amounting to sufficient control for disclosure purposes whatever the relationship between the parties. Whether or not there is such an arrangement is a matter of fact.

Having reviewed the case law, the judge set out the following points for determining whether documents held by one person are under the control of another where there is no legally enforceable right of access:

1. The relationship between the parties is irrelevant. It does not depend on there being control over the holder of the documents in some looser sense, such as a parent and subsidiary relationship;
2. There must be an arrangement or understanding that the holder of the documents will search for relevant documents or make documents available to be searched;
3. The arrangement may be general in that it applies to all documents held by the third party or it could be limited to a particular class or category of documents. A limitation such as an ability to withhold confidential or commercially sensitive documents will not prevent the existence of such an arrangement;
4. The existence of the arrangement or understanding may be inferred from the surrounding circumstances. Evidence of past access to documents in the same proceedings is a highly relevant factor;
5. It is not necessary that there should be an understanding as to how the documents will be accessed. It is enough that there is an understanding that access will be permitted and that the third party will co-operate in providing the relevant documents or copies of them or access to them;
6. The arrangement or understanding must not be limited to a specific request but should be more general in its nature.

Applying these principles to the facts of the case, the judge said there was no doubt that the relevant individuals had permitted their documents to be searched as part of the disclosure exercise in the case. The question was whether there was some sort of understanding or arrangement that the claimant should have ongoing access to the documents. On the evidence, the judge was satisfied that there was such an arrangement in relation to the documents held by PDP, Circle and the various individuals connected with those entities, other than Sheikh Khalifa.

The basis for his decision was that, throughout the disclosure process, there had never been any suggestion that the documents held by these individuals were not under the control of the claimants. The issue of control was raised only when the defendants complained about the extent of the disclosure given. As the judge put it, the only reasonable explanation was that it had always been understood and agreed that the claimants would have access to the documents held by these individuals.

The judge commented that this was not a surprising conclusion, since the claimants themselves held no documents, and throughout the relevant period were managed and controlled by the parent companies through their employees or agents. It was therefore only to be expected that the claimants would be able to access the documents held by those individuals, whether or not there was a legally enforceable right to do so. Sheikh Khalifa was, however, in a different category, as he was not involved in the management and control of the claimants' business in the same way (though on occasion he may have authorised certain transactions undertaken by the claimants).

As there was no evidence that the understanding or agreement between the claimants and the relevant individuals had been terminated, the judge held that it was continuing.