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Documents held by third parties - "Agent" and "Control" in Quartz Assets LLC v Kestrel Coal

Posted on 9 December 2021

Disclosure and Control

Parties to proceedings often consider that documents held by third parties that are outside of the proceedings, but connected to the other parties, are relevant to their case. Equally, the other parties to the proceedings often disagree. Further, even where it is accepted that such documents are relevant, the parties may disagree as to whether it is "reasonable and proportionate" for documents held by a third party to be collected and disclosed. As a result, there are often disputes as to whether the party to the dispute has a duty to disclose the documents held by the third party.

Under the current Civil Procedure Rules, a party's duty to disclose documents is limited to documents that are or have been within its "control". For this purpose, a party has, or has had, control of a document if: (a) it is (or was) in his physical possession; (b) he has (or previously had) a right to possession of it; or (c) he has (or previously had) a right to inspect or take copies of it.

Where a third party holds documents relevant to a dispute, the test for control remains the same: If a party to the proceedings does not have either their own copies of those documents or a right to obtain possession or inspection of them, then such documents are not within their control. In this case the party to the proceedings is not required to disclose such documents.

Blurring the Lines

While this disclosure obligation appears straightforward, in practice the line between a party to proceedings having and not having control over a third party's documents is often blurred. This is particularly so where there is an significant, close relationship between the party to the proceedings and the third party: for example, when one is a parent or subsidiary of one another, or the third party is an agent of the party to the proceedings.

In the former circumstance, if the parent company has a current legal right to inspect or take copies of the subsidiary's documents without its agreement; or if, on the facts, the relationship between the companies means that they should be treated as being one and the same, then the subsidiary's documents are considered within the parent company's control. When it comes to the relationship between an agent and a principal, the usual position is that a party will have "control" over any documents relating to it that are in the hands of its agent. However, they will not have a right to possession of the agent's own working papers, which belong to the agent.

Normally, documents held by an agent of another third party (e.g. the agent of a parent company of a party to proceedings) will not be within the control of a party to legal proceedings. However, the position is complicated in circumstances where a party to proceedings is in a position where its parent company's agent can (and does) take steps that substantially affect the legal relations of subsidiary. In such cases, it is necessary to look at the purpose and nature of the relationship between the party to the proceedings and the agent in order to determine whether the parent and subsidiary should be treated as "one and the same."

This question was given consideration by the High Court in the recent decision in Quartz Assets LLC and another v Kestrel Coal Midco [2021] EWHC 2675 (Comm).

Quartz Assets LLC and another v Kestrel Coal Midco

In this case the Judge, Mr Justice Carver, considered disclosure applications from both the claimants and the defendant. However, it was the claimants' application which raised the question of control over documents held by third parties.

The Claimants sought a direction that the Defendant's disclosure should extend to documents held by a third party. More specifically, the Claimants sought an order that documents held by Emindobiz Advisory Pte Limited ("Emindobiz"), an agent of the Defendant's parent companies, were within the Defendant's control and therefore disclosable in the proceedings.

In this case the Defendant ("Kestrel") was an Australian SPV owned by a consortium of investors led by EMR Capital Advisors Pty Ltd ("EMR") and PT Adaro Enegeru Tbk (together the "Sponsors"). Kestrel had purchased interests in certain Australian mines (the "Investment"). In order to fund the Investment, the Sponsors instructed Emindobiz to identify potential lenders and/or equity investors for Kestrel. Emindobiz' scope of work included: identifying lenders, interacting with lenders, negotiating commercial terms, introducing parties who might provide equity funding for the Investment, and introducing lenders who might provide mezzanine financing arrangements. They did so pursuant to a retainer with EMR.

The Claimants sought disclosure from Kestrel of documents held by Emindobiz in relation to the Investment. However, Emindobiz was not Kestrel's agent, but rather an agent of EMR (one of Kestrel's parent companies). As such, it was not clear whether Kestrel could be said to have control over documents held by Emindobiz. Careful consideration was therefore given to the precise nature of the relationship between Emindobiz and Kestrel.

Kestrel argued that, as Emindobiz was not instructed by it, it could not be said to be its agent. Further, in any case, there was a "no agency" provision in the retainer that made clear that Emindobiz was not authorised to contractually bind the Sponsors or Kestrel. The Claimants, however, argued that, under the terms of their retainer, Emindobiz were authorised to act as an agent of Kestrel as well the Sponsors. The Claimants accepted that there was a 'no agency' clause in the retainer, and that Emindobiz therefore did not have power to contractually bind either the Sponsors or Kestrel. However, they argued that the clause did not prevent Emindobiz from negotiating on their behalf, and therefore that they were an agent of Kestrel (and the Sponsors) in that sense.

The Decision

The Judge agreed with the Claimants.

In particular, he held that the “no agency” clause did not prevent Emindobiz from altering the legal relations between the Defendant and a third party. Specifically, he pointed out that, although Emindobiz was not authorised to agree to a contract on Kestrel's behalf, Emindobiz could make representations during negotiations which would bind Kestrel if a contract was subsequently agreed. Accordingly, he held that Emindobiz was an agent of Kestrel, meaning Kestrel had control over, and therefore could and should disclose, the documents that the Claimants sought.

This ruling demonstrates the principal of "control" is continually being redefined. It should also be noted that the particular factual matrix of the relevant parties' relationship and the operation of that relationship in practice will always be relevant to the question of "control".  Parties should therefore be cautious when considering what documents are (or are not) in their control for the purposes of disclosure. It is only once the question of control has been determined that parties are required to address whether disclosure of particular third party documents may be reasonable and proportionate.

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