High Court finds agency relationship and 'control' for purposes of disclosure where third party not authorised to sign contract for principal

In Quartz Assets LLC and another v Kestrel Coal Midco Pty Ltd [2021] EWHC 2675 (Comm), the High Court held that a third party authorised to conduct contractual negotiations on behalf of the Defendant, but not sign the contract, was acting as an agent, and that relevant documents which it had created were therefore in the Defendant's control and ought to be disclosed. The decision emphasises that the courts will consider substance over form when determining whether an agency relationship exists, and constitutes a reminder of the definition of 'control' for the purposes of disclosure.

Facts

The decision arises from a disclosure application in a long-running dispute between a lender (Quartz) and a consortium-owned SPV (Kestrel), which centres on the Defendant's alleged breach of its exclusivity obligations in relation to the financing of its acquisition of a majority interest in an Australian coal mine. Following the execution of a commitment letter which bound the parties to enter into a mezzanine lending facility, the Defendant agreed terms with an alternative provider and sought to withdraw from the existing agreement with the Claimants. The Claimants argue that these actions constitute both misrepresentation and a breach of the terms of the commitment letter.

The Claimants made an application for additional disclosure pursuant to PD51U, para 17.1(2), which allows a court to make further orders as to disclosure in circumstances where there has been failure to adequately comply with an order for Extended Disclosure. Amongst other issues, the application included a request for direction that the Defendant's disclosure should extend to documents held by a third party, Emindobiz Advisory PTE ltd ("Emindobiz"). The Claimant argued that the documents were relevant to certain of the twelve issues for disclosure specified in the court's original disclosure directions and that they should be treated as relevant and within the Defendant's control.

Emindobiz was an advisor to the Defendant and had been "centrally involved" in identifying potential mezzanine lenders for the acquisition, both before and after the parties had entered into the commitment letter. These actions had ultimately led to the replacement of the Claimants with an alternative finance provider. As such, it was common ground that certain documents created by the company were relevant to the claim. However, the Defendant submitted that such documents were not within its control on the basis that Emindobiz was not its agent. The key factors in this submission were that: 

(i) Emindobiz carried out its work pursuant to a retainer which contained a "no agency" clause that prohibited it from entering into or signing any document on behalf of the Defendant.

(ii) Payments under the retainer were made to Emindobiz by a member of the consortium behind the acquisition, rather than the Defendant itself.

The Claimants submitted that the nature of the retainer did not prevent Emindobiz from negotiating on the Defendant's behalf or potentially altering legal relations between the Defendant and a third party, and that the judge should therefore look beyond the retainer to consider the true nature of the relationship.

Decision

The High Court granted the Claimants' application for additional disclosure in relation to the documents held by Emindobiz. 
Citing the 2021 White Book (Volume 1, Note 31.8.2) the judge confirmed that "control" for the purposes of CPR 31.8 included circumstances where documents were in the possession of a servant or agent, and went on to consider two key authorities on the nature of agency:

(i) Citing Bowstead and Reynolds on Agency (22nd Edition), the judge noted that agency principles are likely to apply where there is evidence of authority being conferred to alter a principal's legal relations:

"Notwithstanding its voluntary nature, where there is evidence of a conferral of authority to alter a principal's legal relations, the normal incidents of agency are, prima facie, likely to apply even if the parties' contract expressly disavows one being the agent of the other."

(ii) The judge also referred to Marcus Smith J's obiter comments in Pengelly v Finance 4 [2020] EWHC 2002 (Ch), that "it is perfectly possible for an agent to affect the principal's legal relations with third parties in ways other than the conclusion of a contract." The judgment in Pengelly also makes clear that courts should look to the substance, not the form, of the parties' relationship: 

"The fact that a person adopts or is given the label "agent" – or, conversely, seeks to avoid it – cannot be determinative. That is why [it is] necessary to focus on the functions that the agent is performing."

On the basis of these authorities, the judge found that Emindobiz was acting as the Defendant's agent. The judge noted that he had considered the nature of the retainer and found the Claimants' submission that Emindobiz was able to negotiate contracts on behalf of the Defendant to be "clearly correct". Emindobiz's position enabled it to affect the Defendant's legal relations by making representations during negotiations which would be binding at the conclusion of the contract, and the fact that it had no power to bind its principal to the contract itself was not a deciding factor.

Further, the Defendant had the legal right to access documents held by Emindobiz and was therefore clearly in a position to procure and disclose such documents if required.

The decision also clarified that the question of whether the Defendant was paying Emindobiz for its work directly was of little consequence. The judge noted that such arrangements are common and should not detract from the analysis of the true nature of a retainer when determining whether an agency relationship exists.

Commentary

 This decision reiterates that, when it comes to the question of agency, the court will primarily focus on the substance and not the form of  relationships between parties, and confirms that agency may be established even where an agent does not have the  power to bind its principal to a contract. Parties involved in proceedings where there might be agent / principal relationships should therefore be mindful of such issues when considering their disclosure obligations.