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Disclosure can apply to subsidiaries under pilot, says court

Out-Law News | 05 Mar 2020 | 3:13 pm | 4 min. read

Disclosure of documents held by a subsidiary company of a party to litigation may be ordered in certain circumstances under the terms of the pilot disclosure scheme currently running in the Business and Property Courts (BPC) of England and Wales, a judge has ruled.

The disclosure pilot limits a party's duty to disclose documents to those "which are or have been in his control". BGEO Group UK (BG UK) had argued that it did not control documents held by two subsidiaries, JSC BGEO Group (BG Georgia) and JSC Bank of Georgia (BoG), and so it did not have to disclose them in connection with a case brought by Georgian businessman Roman Pipia.

The English court disagreed. While agreeing as a starting point that a parent company will not necessarily exercise control over documents held by its subsidiaries, in this case, BG UK had been granted "standing consent" by BG Georgia and BoG to access the relevant documents on request.

Commercial litigation expert Richard Dickman of Pinsent Masons, the law firm behind Out-Law, said: "The decision confirms that the concept of the documents within a party's 'control' remains central to disclosure under the pilot, even if this does not appear quite as clearly as perhaps it might on the face of the practice direction setting out the pilot rules or the disclosure review document (DRD) which parties must complete under the pilot".

"We are now starting to see a more steady flow of reported court decisions made under the pilot. Given the importance of disclosure to litigation strategy and managing the costs of litigation, it is welcome that parties will have available to them a growing body of guidance from the courts as to how various aspects of the pilot might apply in their cases," said Dickman, who was a member of the Disclosure Working Group which developed the pilot.

The BPC disclosure pilot scheme began in January 2019 and is currently expected to run until the end of 2020. It is aimed at making disclosure more proportionate and focused on the issues in dispute between the parties. Where the pilot applies, parties must generally give initial disclosure of key documents when serving their statements of case. Further 'extended disclosure' to the extent that is reasonable and proportionate may then be ordered by the court, guided by the contents of a DRD prepared by the parties.

Once the disclosure process is complete, parties must certify that the list of documents provided is "a complete list of all documents which are or have been in my control and which I am obliged under the disclosure order to disclose". The Practice Direction within the Civil Procedure Rules (CPRs), which gives effect to the pilot, does not expand on the concept of control.

Referring to previous case law, Mr Justice Baker said that mere ownership of the subsidiary companies did not, without more, mean that their documents were within BG UK's control. The parent company also needed either a presently enforceable legal right to obtain the documents, or to have put some kind of 'control arrangement' or 'standing consent' in place allowing access.

The subsidiaries had denied a request by BG UK for "open access" to all of its documents and data, which it had sought as part of its preparations for the case. They cited bank secrecy and Georgian law. However, they had agreed to an earlier request granting the parent company access to "all the documents pertaining to [the Pipia claim] as requested by us or our advisors".

Mr Justice Baker found that this earlier agreement was sufficient to amount to 'control'. He said that the subsidiaries' consent "does not have to grant unrestricted access to a third party's documents so that the litigating party may go through them (itself or using its solicitors) to identify documents that, because of their relevance to the litigation issues, should be disclosed".

"There can be 'control' that extends to a single document only," he said.

"[The agreement in this case] 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. The request for consent was not in any way conditional or qualified; and the request was 'acknowledged and agreed' by each authorised counter-signatory likewise without condition or qualification," he said.

"Interpreted reasonably, those arrangements in my judgment require BG UK ... to formulate requests for particular documents or classes of documents so that BG Georgia, respectively BoG, can sensibly and reasonably readily comply. I do not interpret them as agreements entitling BG UK in effect to impose on BG Georgia or BoG all extended disclosure obligations such as they may have owed had they been party to the claim," he said.

Dickman said that the judgment clarified that a control arrangement "does not need to give a litigating company wholesale, unrestricted access to another's documents in order to confer 'control' for the purposes of disclosure".

"There can be 'control' over specific documents or categories of documents only, and the fact that it is necessary to make a request for those documents in order to obtain them does not prevent them from being within the requesting party's control," he said. "The judge also recognised that it might in some circumstances be possible for one company to consent to another having access to its documents in future by implication, through the repeated provision of documents."

Litigation expert Emilie Jones of Pinsent Masons said that although the question of 'control' would be fact specific in every case, the decision "emphasises how important it is for corporate groups to maintain clear boundaries around access to documents to avoid finding themselves having to carry out a disclosure exercise which is wider than anticipated".

"Having wide-ranging access to other group entities' documents may in some circumstances be practically or strategically important," she said. "However, it can also have implications throughout the disclosure process, from widening the pool of necessary recipients for document preservation notices which must be sent at the outset of a dispute, to potentially adding significantly to the volume of data which must be collected, processed, reviewed and ultimately disclosed to the other side in a piece of litigation."

"Businesses should therefore pause for careful consideration of the consequences before putting in place standing consents to access documents between group entities, such as a right to access all documents relevant to a particular dispute as and when requested. Although not the subject of this case, arrangements such as the sharing, across a corporate group, of a common electronic document storage system without segregation of each company's respective data, may also place the relevant companies at risk of a finding that they had control of each other's documents for disclosure purposes," she said.