North Shore Ventures Ltd v Anstead Holdings Inc [2012] EWCA Civ 11

"Family trusts are a well known possible device for trying to place assets ostensibly beyond the reach of creditors…."

For some years, it has been feared that the English matrimonial courts are prepared to bend over backwards to assist applicants in their endeavours to access assets held within trust structures but this rather 'world weary' quote comes from a recent Court of Appeal decision in North Shore Ventures Ltd v Anstead Inc [2012] EWCA Civ 11.  This case shows that it is not just the judges of the Family Division who are prepared to assist litigants seeking to get at trust assets.  

North Shore Ventures was a rather extreme case and the Court of Appeal had this to say:-  

"The circumstances surrounding the appointment and behaviour of the trustees were undoubtedly suspicious.  For a wealthy man….to make himself a pauper, with the genuine intention of disposing of his money to his last dollar irrevocably and with no ability to control what was to happen to it, is an unlikely scenario."

North Shore Ventures does, nevertheless, provide guidance on the question issue of what constitutes 'control' of relevant documents.  Where documents are in the possession of a third party (such as a trustee) who is connected to one of the parties to the dispute, and the court determines that the third party has the documents as 'agent' for the litigant, then the court may well make an order for disclosure of those documents.  This 'long arm' principle also seems to operate where the documents are held outside the jurisdiction.

The background

North Shore was owed a sum in the region of $35m by Mr Fomichev and Mr Peganov under a judgment debt which they sought to enforce.  Mr Fomichev and Mr Peganov responded by swearing affidavits, according to which they had no assets worth mentioning.  Both said that they had disposed of virtually all their property to 'off shore' discretionary trusts.  Accordingly, North Shore attempted to obtain information about the trusts.  In particular they asked to be provided with:-

The trust deeds

Any letters of wishes  

All documents relating to the settlement of asssets on trust  

All documents identifying the assets settled on or held by the trustees

Various other documents including minutes of meetings of the trustees.  

Floyd J heard the application and ordered Mr Fomichev and Mr Peganov to produce the documents.   That order was then appealed to the Court of Appeal.  The appellants argued that they did not have possession or control of the documents.  

Under CPR 71.2, the Court may order a judgment debtor to attend court to provide information about his means or any other matter about which information is needed to enforce a judgment.  CPR 71.2(6)(b) provides that when a judgment debtor attends court he 'must produce at court documents in his control which are described in the order'. CPR 71.2 does not define 'control' but the same term appears in CPR 31, which deals more generally with disclosure and inspection of documents.  CPR 31.8 provides:  

  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 has had a document in his control if
    1. it is or was in his physical possession;
    2. he has or has had a right to possession of it;' or
    3. he has or has had a right to inspect or take copies of it'.  

Before the Court of Appeal it was argued that Floyd J got it wrong because he wrongly took the view that an order could properly be made in respect of documents that were outside the appellants' control, provided that they were in a position to obtain them; or he misdirected himself as to the meaning of control, wrongly equating the ability to obtain documents with having the documents in their control.  The appellants argued that a document which is not in the physical possession of a party is not within in his control unless he has a currently enforceable legal right to its possession (or to take copies of it).  They relied on the words of CPR 31.8 and earlier decisions of the House of Lords and the Court of Appeal.  

It was said that a beneficiary under a discretionary trust has no immediately enforceable right to possession or to take copies of trust documents.  All the beneficiary had was a right to ask the court to order the trustees to allow him to take copies of trust documents, and that was a matter for the discretion of the court - Schmidt v Rosewood Trust Ltd [2003] AC 709.

North Shore's also relied on Schmidt v Rosewood and its response was that the judge was entitled to conclude that the appellants were in fact in control of the relevant documents.  It was argued that the trustees had not acted as independent trustees but rather to fulfil the appellants' wishes, and as beneficiaries or former beneficiaries under the trusts the appellants had sufficient legal right to give the court jurisdiction to make the order which it did.  

The decision

Toulson LJ considered the factors which could be taken into account when assessing whether the appellant had 'control' of the relevant documents.  He also analysed the particular relationship between the appellant and the trust and considered that "the circumstantial evidence gave reasonable ground 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, consistent with the appellants' real aim, and that the nature of that understanding and arrangements were such that trustees would take whatever steps the appellants wished in the administration of the trusts".  Toulson LJ therefore concluded that the close relationship between the trustees and appellants meant that Floyd J was entitled to make the order which he made.

The test set out by Toulson LJ was:  

"In determining whether documents in the physical possession of a third party are in a litigant's control for the purposes of CPR 31.8, the court must have regard to the true nature of the relationship between the third party and the litigant.  The concept of "right to possession" in CPR 31.8(2)(b) covers the situation where a third party is in possession of documents as agent for a litigant.  The same would apply in my view if the true nature of the relationship was that the litigant was to be the puppet master in the handling of money entrusted to him for the specific purpose of defeating the claim of a creditor.  The situation would be akin to agency.  But even if there were, on a strict legal view, no "right to possession", for example because the parties to the arrangement caused the documents to be held in a jurisdiction whose laws would preclude the physical possessor from handing them over the party at whose behest he was truly acting, it would be open to the English court in such circumstances to find that, as a matter of fact, the documents were nevertheless within the control of that party within the meaning of CPR 31.8(1).  CPR 31.8(2) states that, for the purposes of CPR 31.8(1), a party has or has had the document in his control if the case falls within paragraphs (a) to (c).  It does not state that a party has or has had a document in his control if, but only if, the case falls within one of those paragraphs".