Disclosure and the test for ‘control’ in CPR r.31.8


Reference:
Ardila Investments v ENRC [2015] EWHC 3761 (Comm)

Date:
17th December 2015

Court:
Commercial Court

Facts:

In 2010 ENRC purchased an iron ore mine in Brazil from Ardila pursuant to a Share Purchase Agreement. The SPA provided for ENRC to make payments to Ardila upon the grant of certain licences by the Brazilian federal environmental regulator which were required for the operation of the mine. Ardila brought proceedings against ENRC in the Commercial Court seeking payment of US$220 million on the basis that the relevant licences had been granted and the payment had been triggered under the SPA. ENRC defended the proceedings and alleged that the licences had been granted improperly.  

Ardila applied for disclosure of documents held by ENRC’s indirect subsidiaries in Brazil. ENRC resisted the application on the grounds that the subsidiaries’ documents were not in its control pursuant to CPR 31.8. In Lonrho v Shell [1980] 1 WLR 627 the House of Lords held that the equivalent provision in the RSC required a party to disclose documents only if the party had “a presently enforceable legal right to obtain from whoever actually holds the document inspection of it without the need to obtain the consent of anyone else”.

Males J refused Ardila’s application on the grounds that ENRC did not have the requisite control over the Brazilian subsidiaries’ documents. In doing so he reviewed the recent first instance and appellate decisions on the question of disclosure of documents held by third parties, including the Court of Appeal’s decision in Northshore Ventures v Anstead [2012] EWCA Civ 11. Males J held that for disclosure to be ordered there must be “an existing understanding or arrangement from which a right of access in practice can properly be inferred.”


Comment:

The decision in Lonrho v Shell appeared to have been whittled down by recent decisions, including Northshore Ventures and Global Energy Horizones v Gray [2014] EWHC 2925 (Ch). In the latter case Sales J suggested that the test for disclosure was whether the party had “practical control” over the relevant documents – a test which, if adopted, would have substantially undermined the reasoning of the House of Lords in Lonrho v Shell.  Males J’s reconciliation of these more recent decisions with the established case law provides important guidance when disclosure is sought from a parent company of documents held by its subsidiaries.

In summary:  

  •  a parent company does not merely by virtue of being a 100% parent have control over the documents of its subsidiaries;
  • an expectation that the subsidiary will in practice comply with requests made by the parent is not enough to amount to control for the purposes of CPR 31.8;
  • there is no obligation on a parent to make a request for documents from its subsidiaries, although in some circumstances the court may draw inferences if the parent declines to make sensible requests; and
  •  a party may have sufficient control if there is evidence of the parent already having had unfettered access to the subsidiary's documents or if there is material from which the court can conclude that there is some understanding or arrangement by which the parent has the right to achieve such access. It was into this category that Males J put the Northshore decision.

 

Christopher Lloyd appeared as junior counsel for ENRC led by Stephen Smith QC and Tim Akkouh.



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