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Cross-border disputes and asset tracing - pre-action disclosure regimes in Guernsey

18 May 2017

In modern cross-border litigation it is often absolutely critical to be able to secure evidence and to identify assets in advance of commencing a legal claim. Sophisticated operators commonly deploy a complex and opaque web of international vehicles. Corporations and individuals frequently appreciate the benefit of utilising nominee companies and trust structures, often in "offshore" jurisdictions, as a means of safeguarding or ring-fencing assets. This is usually for perfectly legitimate reasons, but occasionally more nefarious motives are at play. This note aims to give a brief overview of the principal methods of securing pre-action disclosure of evidence and assets in Guernsey.

The general rule in Guernsey civil litigation is that pre-action disclosure is not available (apart from the special category of personal injury claims). However, provided the relevant legal tests can be met, three types of interlocutory order can be obtained from the Royal Court which can, in appropriate cases, assist the investigation of a claim or preservation of assets in advance of the commencement of substantive legal proceedings. These are:

  • Norwich Pharmacal orders;
  • Bankers Trust orders; and
  • Disclosure orders ancillary to a freezing injunction.

These orders have all been adopted and adapted from English common law. Which, or which combination, of these orders will be most appropriate depends on the circumstances of the case. English jurisprudence is often regarded by the Royal Court as highly persuasive in this area, although technically it is not strictly binding. The Guernsey courts traditionally take a flexible approach, however, and there are a number of important Guernsey decisions, particularly in the field of freezing injunctions, which modify and in some cases extend the boundaries of what information can be obtained and for what purposes.

Norwich Pharmacal orders
A Norwich Pharmacal order requires a respondent to disclose specified documents or information to the applicant. The respondent is usually a third party to the dispute, who has become "innocently" involved or mixed up with the wrongdoing, and who therefore has relevant information. Accordingly the respondent is unlikely to be a party to the prospective substantive proceedings.

The jurisdiction was established in the English House of Lords decision in Norwich Pharmacal Co. v Customs and Excise Commissioners [1974] AC 133. It has been examined and restated on many occasions since. This is a particularly fluid area of the law and the principal authorities cited in Guernsey are often English.

The most common use of the jurisdiction is to identify the proper defendant to an action or to obtain information which is essential to enable a plaintiff to plead a claim. However, there does not need to be a definite intention to commence legal proceedings if some other avenue of redress might be more suitable. See, for example, Totalise plc v Motley Fool Ltd [2001] EWCA Civ 1897, [2002] 1 WLR 1233 and Ashworth Hospital Authority v MGN Ltd [2002] UKHL 29, [2002] 1 WLR 2033).

An order can be obtained pre-action, during the course of an action and even, admittedly in unusual cases, post-judgment.

In Guernsey, as in England and Wales, the jurisdiction is not limited to the identification of wrongdoers and extends to the disclosure of documents which are relevant to a plaintiff's principal cause of action (X v Registrar of the Ecclesiastical Court of the Bailiwick of Guernsey, Royal Court judgment 46/2004, 2003-4 GLR Note 24).

Norwich Pharmacal orders can also be used to enable an applicant to identify the full nature and extent of wrongdoing (Arab Monetary Fund v Hashim (No. 5) [1992] 2 All ER 911) even where the identity of the wrongdoer is known. However, "fishing expeditions" are not permitted: that is to say, there must be an adequate evidential basis for asserting that the person or entity targeted by the order is in some way liable for specific wrongdoing done to the applicant.

The prerequisites for obtaining a Norwich Pharmacal order in Guernsey are that:

  • The Respondent is involved in wrongdoing;
  • The "mere witness" rule is not infringed (this rule prevents parties from obtaining early disclosure of evidence from persons who will, in due course, be compellable to give evidence in the proceedings as witnesses);
  • The order is necessary in the interests of justice; and
  • The respondent is likely to have the relevant documents or information.

Bankers Trust orders
Bankers Trust orders derive from the English case of Bankers Trust v Shapira [1980] 1 WLR 1274. They are, in essence, extensions of the Norwich Pharmacal regime. Such orders can be made to assist an applicant to trace assets held by a wrongdoer in respect of a proprietary claim.

They can be used to seek disclosure from third parties (such as the alleged wrongdoer's bank) but are only available in Guernsey in relatively narrow circumstances in which it can be demonstrated that:

  • There is a fairly clear-cut case of fraud;
  • Disclosure is sought in support of a proprietary claim; and
  • Urgency is justified due to a risk of dissipation of the assets before an action can come on to trial.

Where Bankers Trust criteria do not apply, Norwich Pharmacal relief may nevertheless still be available to a plaintiff seeking to identify the proper defendant to an action or to obtain information which is essential for pleading a claim.

Disclosure ancillary to freezing orders
Guernsey goes further than the traditional English authorities on freezing injunctions in one significant respect. As well as requiring compulsory disclosure of assets and their location by a defendant to an action, a Guernsey freezing order can and often does require disclosure of additional information from third parties: such as documents and records relating to bank accounts held by financial institutions for the benefit of the defendant. The purpose of these orders is to assist in policing the injunction and they are commonly expressed as being necessary in order to give the freezing injunction "teeth". The leading authority in Guernsey is Seed International Ltd v Tracey (Court of Appeal judgment 55/2003). Relief is available in respect of Guernsey-based third parties not only in domestic claims, but also in support of legal proceedings elsewhere in the world. The usual conditions for granting a Guernsey freezing injunction, which are discussed in more detail in our separate briefing "Guernsey freezing injunctions", must of course be met.

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