Standing in the way of control: PD51U, subsidiaries and disclosure

Published: 2/4/2020

In Pipia v BGEO Group Ltd [2020] EWHC 402 (Comm), the Business and Property Courts set out important guidance on the meaning of ‘control’ for the purposes of disclosure in relation to documents of the subsidiaries of a litigating parent. The case addressed the issue within the context of the Disclosure Pilot under PD 51U, but applies equally to litigating parties both within and outside that Pilot.

For more on the Disclosure Pilot, please see our previous blog articles here and here.

In Pipia, Mr Justice Baker gave clear guidance that 'control' for the purposes of a party's disclosure obligations does not require the parent to have an enforceable legal right over its subsidiaries' documents, but an arrangement or understanding whereby the parent has a right of access. That arrangement or understanding should be tested with close analysis and could relate to a specific class of documents; there is no need for the litigating parent to have wholesale access to all of its subsidiary’s documents.

The judgment is available here

PD51U and Background Facts

In Pipia, the Court was concerned with 'control' in the context of the disclosure pilot scheme under PD51U. The definition of 'control' in PD51U is similar to that of CPR 31.8 and includes "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."

In Pipia the Defendant (referred to as "BG UK") applied for a declaration that documents held by two of its subsidiaries ("BG Georgia" and "BoG") did not fall under its control. BG UK is the 100% shareholder of BG Georgia, which is in turn the 79.75% shareholder of BoG. Both BG Georgia and BoG had previously been parties to the substantive claim, but proceedings against them had been discontinued before disclosure had taken place.

In two letters dated 30 March 2008, BG UK wrote to each of BG Georgia and BoG to request them to provide to BG UK "all the documents pertaining to [the Claim] as requested by us or our advisors". Those letters were countersigned by the subsidiaries and certain documents were then provided pursuant to those letters. There was no issue over 'control' for the documents that were handed over to BG UK.

The declaration was instead sought for BG Georgia and BoG's documents that were not provided – the question before the Court was whether those documents were in BG UK's control or not.

Decision

The Court decided that BG UK did have control over BG Georgia and BoG's documents, arising from the 30 March letters. Those letters created a standing consent for BG Georgia and BoG to provide documents that related to the claim to BG UK on BG UK's request. The Claimant had also made submissions that the Defendant's control over these documents pre-dated those letters, which the Court rejected. In reaching its decision, the Court helpfully addressed and analysed the relevant principles.

Base principles

As a starting point, the parties "mostly" agreed on the current case law position, citing Lonrho Ltd v Shell Petroleum Co Ltd (no1) 1 WLR 627, whereby a parent would have 'control' over documents held by a subsidiary where either:

  1. there is an existing arrangement or understanding (that need not be a legally enforceable contract) that in practice provides the parent with a right of access to documents held by its subsidiary. It is not enough that a parent 100% owns a subsidiary.
  2. the parent company has a presently enforceable legal right to obtain the documents from its subsidiary.

The second of these was not relevant in this case. Although the parties agreed with the principle in the first, they disagreed as to whether that access must be "free and unfettered" and if there is such a requirement, what that meant.

Access

After consideration of the case law, Mr Justice Baker found that a standing consent need not be of unrestricted access to all of a third party's documents so that the litigating party could review them for the purposes of identifying what would be relevant and disclosable in the proceedings. It would be possible for there to be 'control' by way of access over, for example, a single document or class of documents. The correct test for the Court to apply as to whether a third party's documents, class of documents or specified document was within a litigating party's 'control' rested on three questions:

  1. The scope or subject matter of the consent – the documents or types of document covered by the consent;
  2. The type of consent – how the disclosing party will get hold of the documents;
  3. The quality of consent – whether it involves free and unfettered access to the documents covered.

Mr Justice Baker explained that these three questions are distinct in concept, although he did concede that in practice it might be difficult to treat them as distinct. The first defines the documents over which the disclosing party will have control by virtue of the consent, the second explains what the disclosing party will be expected to do to satisfy its disclosure obligations in relation to the documents, and the third concerns whether the consent is of the right quality for control to be effective.

In analysing the quality of the consent, the Court was clear to state that where a subsidiary had on a couple of previous occasions provided some documents, that would not be sufficient to demonstrate a standing consent. That was the case in Pipia, where the 30 March letters, by providing a standing consent or arrangement, had changed the previous position.

There is no obligation on a litigating party to make requests for its subsidiary's documents. However, the Claimant did make submissions that the Court should draw an adverse inference against BG UK because of their failure to make sensible requests for documents, on the basis that that failure was because of a fear on the part of the parent that the subsidiary would inevitably provide such documents. Although the Court rejected that submission on the factual context of Pipia, it was clear to leave the door open for the Court to make such an adverse inference in other cases. Whether an adverse inference could be so drawn would depend on the facts of the case.

Concluding remarks

On this occasion, the critical point was the countersigning of the letters by the subsidiaries, by which the subsidiaries agreed to provide "all the documents pertaining to [the Claim] as requested by us or our advisors". That was interpreted as a standing consent that had not been terminated. Since 'control' need not arise from a legally enforceable right, the Court did not need to consider whether that countersigned letter was a contract or not.

Litigating parties must therefore be careful when approaching documents of their subsidiaries that are third parties to a litigation. In particular:

  1. A parent need not enjoy a free and unfettered right to search through its subsidiary's documents to find relevant documents in order for certain documents to be within its 'control', which can extend to a class of documents or single document.
  2. an unqualified agreement on the part of a subsidiary to provide documents to its parent will in all likelihood be sufficient for the Court to consider the litigating parent has 'control' over the third party's relevant documents.
  3. Although there is no obligation for a litigating party to request documents from its subsidiary, it is open for the Court to make an adverse inference from parents that do not make such a request. Whether or not an adverse inference is drawn or not depends on a close analysis of the facts of each case.

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