Norwich Pharmacal relief – a flexible tool to fight fraud

Cayman courts, like courts in other common law jurisdictions, have the power to order third parties to reveal information about wrongdoing, even where that information would otherwise be confidential.

A Norwich Pharmacal order (named after the leading English case) can be a powerful tool to assist with tracing of assets and enforcement, requiring a third party to disclose information and documents. The Cayman courts have confirmed the existence of the jurisdiction to grant Norwich Pharmacal relief in aid of foreign proceedings is a settled proposition in light of Privy Council authority on the issue (Chief Justice in Braga v Equity Trust Company). Recent decisions have shown that the Grand Court is willing to use this tool in a flexible way.

Requirements

To get a Norwich Pharmacal order, an applicant must demonstrate: (1) an arguable case that there has been wrongdoing; (2) that the disclosure sought is necessary to enable it to seek redress for the wrongdoing; and (3) that the respondent has the information and is more than a mere witness (ie, the respondent is ‘mixed up’ in the wrongdoing, innocently or otherwise).

The Grand Court has recently confirmed that taking deliberate steps to avoid enforcement of a foreign arbitral award amounts to actionable wrongdoing, and it is not necessary for local enforcement proceedings to have been commenced or that there is wrongdoing within the jurisdiction (ArcelorMittal v Essar Group  case).

Norwich Pharmacal relief is often sought against registered office service providers, banks and, more recently, internet service providers – classic examples of third parties that receive information in the course of their business which might be essential to identifying wrongdoers, proving wrongdoing, or identifying assets for an enforcement action.

Recent developments

The jurisdiction to order Norwich Pharmacal relief has been described by the Chief Justice as “broad, flexible and developing” (Braga v Equity Trust Company). Recent Grand Court rulings have proved this to be the case:

• In November 2018, the court (in Discover Investment v Vietnam Holding Asset Management) clarified that applications for Norwich Pharmacal relief can engage the ‘wrongdoing exemption’ under the Confidential Information Disclosure Law, so third parties do not need court permission to disclose information
• In February 2019, this was developed further in Re XYZ Limited, which held that third parties only need to seek court directions before disclosing in “exceptional circumstances”
• In March 2019, the court clarified (in ArcelorMittal v Essar Global) that when enforcing a foreign arbitral award, it is not necessary to apply to enforce that award before seeking Norwich Pharmacal relief
• The same decision also protected the court’s jurisdiction to grant Norwich Pharmacal relief, dismissing an argument that it had been replaced by the Evidence (Proceedings in Foreign Jurisdictions) (Cayman Islands) Order 1978 which can be used to obtain evidence for use in foreign proceedings. Pursuant to the Evidence Order, a foreign court can make a request to the Cayman courts for assistance, and the Cayman courts have the power to make provision for obtaining evidence in the Cayman Islands as appropriate, for example, examination of witnesses or production of documents. Whether or not the Evidence Order is engaged depends on the factual and legal circumstances of each case, and if the Evidence Order is engaged, the Norwich Pharmacal jurisdiction may not be available

Norwich Pharmacal orders represent a significant intrusion and inconvenience to the third party’s business. The English Court of Appeal has held that Norwich Pharmacal applications are not ordinary adversarial proceedings, where the general rule is that the unsuccessful party pays the costs of the successful party (Totalise v The Motley Fool). Instead the applicant is usually ordered to pay the third party’s costs and if appropriate, the applicant may then be able to recover its costs of obtaining the information that it needs from the wrongdoer (Jofa v Benherst Finance).

The number of recent cases (here and abroad) shows how effective and flexible Norwich Pharmacal orders are in uncovering fraudsters and revealing information about wrongdoing. Grand Court judges are experienced in dealing with high-value international frauds, insolvencies and other disputes. They are therefore well-versed in these orders, and ready and willing to grant them where they are needed.

Harneys acted for the successful applicant in the ArcelorMittal v Essar Group  case. That decision is currently subject to appeal, so the jurisdiction can expect further guidance on Norwich Pharmacal relief in the near future.

First published in the Cayman Financial Review.