In North Shore Venture Limited v Anstead Holdings Inc(1) the Court of Appeal considered the circumstances in which a document is within a litigant's or judgment debtor's control and therefore potentially disclosable. The court also considered whether trust documents are within the control of a beneficiary of that trust.
The decision is important as it confirms that a document can be within a party's control, notwithstanding that it has never been in the party's possession and that the party has never had a strict legal right to possess, copy or inspect it.
In 2003 North Shore agreed to loan Anstead $50 million. The loan was guaranteed by the appellant judgment debtors, Mr Formichev and Mr Peganov.
In August 2008, following a failure to repay the loan as agreed, North Shore issued a claim against Anstead and the appellants. In March 2009 it obtained worldwide freezing orders against the appellants. In June 2010 it obtained judgment against the appellants for over $50 million, which was subsequently reduced on appeal to around $20 million. Very little of the judgment sum was paid.
In April 2009, following the grant of the freezing orders, both appellants filed witness statements in which they explained that they had only minimal assets, having recently settled virtually all their assets into discretionary family trusts for their wives and children. The appellants were beneficiaries of the trusts.
In June 2010 a High Court judge made an order under Civil Procedure Rule (CPR) 71.2 for the appellants to attend court to be questioned about their means. Shortly before the appellants' cross-examination, listed for a date in July, the trustees of the family trusts obtained injunctions against the appellants to prevent them from answering questions about the trusts.
In October 2010 North Shore applied for an order that the appellants be required to produce certain documents related to the trusts.
Judgment debtors and the scope of disclosure
CPR 71.2 permits the court to require a judgment debtor to attend court to answer questions about his or her means or about other matters on which information is needed to enforce a judgment. A person served with an order under this rule must, when attending court, "produce at court documents in his control which are described in the order".
The term 'control' is not defined in CPR 71.2, but the same term is used in CPR 31, which deals more generally with disclosure and inspection of documents. CPR 31.8 states:
"(1) A party's duty to disclose documents is limited to documents which are or have been in his control.
(2) For this purpose a party has or had a document in his control if –
(a) it is or was in his physical possession;
(b) he has or has had a right to possession of it; or
(c) he has or has had a right to inspect or take copies of it."
Production order
The High Court granted North Shore's application and ordered the appellants to produce documents relating to the trusts. The documents were split into two lists. The first list comprised a variety of documents and was subject to the restriction that the appellants were required to produce the documents only insofar as they were "within their knowledge, possession, custody or control". The second list comprised core trust documents and included no such restriction, as the judge considered (in an ex tempore judgement) that "the court can in certain circumstances simply require a party to produce a document".
Appeal
The appellants appealed the second part of the production order, which required them to produce core trust documents, apparently notwithstanding whether these were within their control.
Before the appeal hearing, the appellants filed further witness statements in which they:
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denied having copies of nearly all of the core trust documents;
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stated that they had sought copies from their Russian lawyers without success;
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stated that they were no longer beneficiaries of the trusts, having been removed by the trustees on September 1 2010; and
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denied having control over the trustees.
They submitted that the judge had:
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wrongly taken the view that he could order the production of documents outside their control; and
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misdirected himself as to the meaning of 'control', wrongly equating this with the ability to obtain documents, rather than an immediately enforceable legal right.
North Shore submitted as follows:
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Looking at the reality of the trust arrangements, the judge had been entitled to conclude that the documents were within the appellants' control; and
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As beneficiaries or former beneficiaries under the trusts, the appellants had, in any event, sufficient legal rights over the trust documents to entitle the judge to make the order.
Control
The Court of Appeal reviewed the authorities relevant to the meaning of 'control' in CPR 31.8, noting in particular the House of Lords decision in Lonrho v Shell,(2) in which it was stated that a document is within the power of a party (for the purposes of the pre-CPR rules) if that party has "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".
The court considered that the circumstances in which the appellants' family trusts had been established were "undoubtedly suspicious", and that the "circumstantial evidence gave reasonable grounds to infer that there was in truth some understanding or arrangement between the appellants and the trustees by which they were to shelter the appellants' assets". The High Court judge had therefore been entitled to find that the documents were within the appellants' control for the purposes of CPR 31.8.
The court noted that where a third party held a document as agent for a litigant, that litigant would clearly have a right to possession of the document for the purposes of CPR 31.8(2)(b). Such an agency situation could arise where the litigant had de facto control over a third party who had been entrusted with money for the principal purpose of sheltering it from creditors.
However, the court went on to comment that even where there was no right to possession of a document in the strict legal sense, this did not preclude the finding that the document was within a litigant's control within the meaning of CPR 31.8. This is because satisfaction of one of the three criteria in CPR 31.8(2)(a) to (c) (ie, possession, a right to possession or a right to inspect or take a copy) is sufficient, but not necessary, for the conclusion that a document is within a litigant's control.
Beneficiaries under a trust
The Court of Appeal also considered, in passing, North Shore's alternative submission that if the reality of the trust arrangements were put to one side, the appellants - as beneficiaries or former beneficiaries under the trusts - had sufficient legal rights to entitle to court to order them to produce trust documents.
Although the court did not accept that being a beneficiary under a trust could be sufficient in all cases to conclude that trust documents were within a litigant's control, they did not rule out that in some circumstances, an order against a beneficiary in respect of a trust document which was not in his or her physical possession would be appropriate.
This decision provides important clarification of the meaning of 'control' in CPR 31.8. Notably, the court considered that the three conditions in CPR 31.8(a) to (c) were effectively only examples of when a document is within a litigant's control. A court is entitled to take a broader view of the meaning of the term and is not bound by the absence of a strict legal right to possession of a document. It seems that if, as a matter of fact, a litigant can obtain a document, it is within the litigant's control and therefore potentially within the scope of disclosure. However, a particular set of facts - such as those in the present case - will be required to license this conclusion in the absence of a strict legal right.
There is less clarity on the status of production orders, such as that under appeal in this case, which purport to apply to documents irrespective of whether they are within a party's control. The Court of Appeal ultimately found that the High Court judge had been entitled to conclude that the documents were within the appellants' control. However, this finding overlooks the fact that:
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the judge seemed to take the view that he could simply order the appellants to produce documents, without first finding that they were within their control; and
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if the documents were within the appellants' control, there was no need for the original production order to be expressed without restriction.
For further information on this topic please contact Daniel Hemming at RPC by telephone (+44 20 3060 6000), fax (+44 20 3060 7000) or email ([email protected]).
Endnotes
