Role of Norwich Pharmacal relief in foreign proceedings and new threshold test for determining if “wrongdoing” has occurred

Dan Bomsztyk

In Ramilos Trading Limited v Valentin Mikhaylovich Buyanovsky, the High Court rejected the applicant’s request for a Norwich Pharmacal Order (“NPO”).  In rejecting the application, Mr Justice Flaux analysed a number of independent elements that must be present in order to grant an NPO, culminating in a significant judgment which both clarifies existing ambiguities while obscuring what appeared to be settled law.  In particular, he considered: (1) the threshold test that must be satisfied by an applicant who is seeking an NPO to establish whether an actionable wrongdoing has occurred; (2) the scope of disclosure that can be obtained with an NPO; and (3) the role of NPOs where proceedings are likely to be issued in a foreign jurisdiction.

What is an NPO?

An NPO, a tool named after the 1974 House of Lords case in which it was established, is an equitable remedy designed to provide an applicant with the information required to make a successful claim for a wrong they have experienced. Unlike disclosure, which requires a defendant to share evidence which may assist a claimant in their bringing of a claim, the original NPO was limited to being granted against innocent third parties who may have information which could be used to identify who the proper defendant might be.  Key considerations when granting an NPO are therefore: (1) what are the circumstances that give rise to the NPO application; (2) what is the purpose of the information; and (3) from whom is the information being sought?

Facts

The applicant held 50% of the shares in a Cypriot company which acted as a parent company (“Parent”) for a group of companies focussed on the plastics industry (“Group”). The other shareholder of the Parent was a different Cypriot company (“R”), of which the respondent was both a shareholder and the managing partner.  The applicant alleged improper shifting of revenue and costs between the Group and other companies controlled by R, the payment of millions of dollars to intermediary companies in St Vincent and Hungary seemingly controlled by R and the Group’s receipt of loans on uncommercial terms from parties connected to both R and the respondent.

In order to ascertain the necessary information to bring an action against R, the applicant submitted an NPO application against the respondent consisting of 39 questions (with additional sub-questions).

Judgment

Flaux J considered the following:

Occurrence of a wrongdoing

While the original NPO granted was in order to assist a defendant in bringing an action for an extant wrongdoing against an unknown party, NPOs have also been granted in order to assist an applicant in determining whether a wrongdoing had occurred at all. It follows that the court must apply a threshold in order to determine a requisite level of evidence/suspicion so as to permit an NPO in cases which will help an applicant determine whether a wrongdoing has occurred while ensuring NPOs are not granted as a result of frivolous requests for information by those with nothing more than baseless allegations.

Disagreeing with counsel for both the applicant (who argued the threshold should be “a good and honest reason” based on P v T Ltd [1997] 1 WLR 1309) and the respondent (who argued for “much the better argument” as the threshold based on United Company Rusal plc v HSBC Bank plc [2011] EWHC 404 (QB)), Flaux J concluded the proper test is the same as that of freezing order applications, known as The Niedersachsen Test, namely a claim which is “more than barely capable of serious argument, and yet not necessarily one which the judge believes to have a better than 50 per cent chance of success“.

Having established this new threshold, Flaux J held that though this had been met in this case, for the following two reasons the application should still be rejected.

Scope of disclosure

Despite a chain of authorities cited by counsel for the applicant supporting a view that the scope of what information can be obtained via an NPO has been widened, the judge described the 39 part questionnaire as “breath-taking“, highlighting the two final general questions where the applicant had requested the respondent to “confirm if [they know] of any other agreement… for which [the applicant] did not receive fair, market value” and for them to “describe the banking arrangements… including listing the principal financial institutions at which each Group [company] holds accounts“.

Referring to NPOs, Flaux J concluded that is “quite clear that the jurisdiction cannot be used for wide-ranging discovery or the gathering of evidence, but is strictly confined to necessary information” and that “the true position is that the jurisdiction remains in a narrow scope“.  Flaux J also pointed to Lord Mance’s comment in Singularis Holdings Ltd v PricewaterhouseCoopers [2014] UKPC 36 that “the courts have been at pains to emphasise the narrow scope of the Norwich Pharmacal jurisdiction” and that it remains “exceptional“.

Flaux J therefore combatted the applicant’s argument of a progression within the Norwich Pharmacal case-law by drawing a firm line in the sand.

Jurisdiction

The final significant element that Flaux J considered was the role of an NPO when the resulting action may be brought in a foreign jurisdiction. To this question, and as a reason to reject this application, Flaux J concluded that if information being sought is to assist in an action being brought in a different jurisdiction, the correct procedure to follow would be that of the Evidence (Proceedings in Other Jurisdictions) Act 1975 (“1975 Act”) rather than the relief provided by an NPO.

Flaux J based this decision on the case of R (Omar) v Secretary of State for Foreign & Commonwealth Affairs [2013] EWCA Civ 118, despite that case focussing on the Crime (International Co-operation) Act 2003 rather than the civil 1975 Act.  There, citing Lord Diplock in Rio Tinto Zinc Corporation v Westinghouse Electric Corporation [1978] AC 547, the judge concluded the route to obtain information required for “proceedings in foreign courts[,] has always been exclusively statutory“.

Flaux J did, however, deal with an apparent contradiction between this conclusion and that found by the judge in Shlaimoun v Mining Technologies International Inc [2011] EWHC 3278 (QB), in which Coulson J held that “depending on the facts, there is no reason why a Bankers Trust/Norwich Pharmacal application should not be made in circumstances where there is the possibility that the ultimate proceedings would be commenced in a foreign jurisdiction“. Flaux J argued that Shlaimoun can apply at preliminary stages where it is not yet clear in which jurisdiction the possible action could be brought.  If, however, the applicant can already identify a foreign jurisdiction as the correct location for any action, the only avenue available would be statutory.

Comment

In a single judgment, Flaux J has established a new test for wrongdoing, halted the creep in scope that NPOs had experienced and cast doubt on how NPO applications will fare when a foreign jurisdiction is involved. It is likely that at least one of these issues will resurface before too long.

Ramilos Trading Ltd v Buyanovsky [2016] EWHC 3175 (Comm)

Post By Dan Bomsztyk (1 Posts)

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