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Norwich Pharmacal orders in support of foreign proceedings – targeting wrongdoers in BVI and Cayman

27 March 2020

In March 2020 the BVI Commercial Court (the "BVI Court") handed down the first written judgment on the subject of overseas applicants asking for third party disclosure orders ("Norwich Pharmacal" orders) against entities doing business in the Territory of the Virgin Islands (the "BVI").

The decision by Wallbank J in K&S v Z&Z BVIHCM(COM) 2020/0016 ("K&S") confirmed that the BVI Court does have equitable jurisdiction to grant Norwich Pharmacal disclosure orders even though BVI has a statutory regime for obtaining evidence for use in foreign proceedings.

Why is this important?
The decision in K&S will assist those trying to enforce foreign judgments to recover assets which alleged primary wrongdoers ("APW"s) are holding wrongfully in BVI companies in order to hide and dissipate those assets in breach of an overseas court order. As in other offshore jurisdictions, details of the ownership and accounts of BVI companies are not publicly available. Therefore, tools such as Norwich Pharmacal orders are very important to help identify and preserve assets subject to wrongdoing. The decision settled uncertainty that arose after decisions in English courts found that the existence of a statutory regime for obtaining evidence for use in proceedings overseas removed a court's equitable jurisdiction to grant Norwich Pharmacal orders. The BVI Court's decision, diverging from the English position, recognises the importance to offshore jurisdictions of maintaining their international reputations as responsible financial centres.

Below, we also consider the position of the Grand Court of the Cayman Islands (the "Cayman Court") on this important issue.

What happened?
In K&S, there was an ex parte application in the BVI for Norwich Pharmacal orders by two commercial lending institutions (the "Applicants") against registered agents of BVI companies which were doing business in BVI. In court proceedings outside BVI, the first applicant had been granted judgments in its favour against the APW which were subject to appeal. The second applicant was waiting for the outcome of an arbitration to determine its action against the APW for breach of contract. All the proceedings were "overseas" in the sense that they did not take place in BVI and neither the APW nor the Applicants reside in BVI.

Why did the Applicants apply for a Norwich Pharmacal Order in BVI?
The Applicants alleged that the APW is using the BVI companies to hide his assets. They believe there is good reason to suppose that some or all of the BVI companies hold assets which will be available for enforcement of the overseas court judgments or the arbitration award once those are determined. The BVI Court had already made freezing orders against the BVI companies involved including ancillary disclosure orders to police compliance with the freezing orders. All of the BVI companies disobeyed those orders by failing to provide any disclosure at all pursuant to these orders. The Applicants applied for relief in support of the overseas court proceedings, and/or the overseas arbitration and/or in support of the BVI Court's freezing orders.

What is a Norwich Pharmacal order?
A Norwich Pharmacal order may be obtained where a person or entity (A), through no fault of their own, ends up helping someone (B) do something wrong to someone else (C). A's action may not mean they incur any personal liability, but because they are "mixed up" in the wrongdoing, they come under an obligation to assist C by giving them "full information" and disclosing the identity of the wrongdoers B and certain (but limited) information regarding the nature of the wrongdoing. The name comes from a decision of the English House of Lords in Norwich Pharmacal v Customs & Excise Commissioners [1974] AC 133. Norwich Pharmacal orders are regularly made in the BVI, especially against the registered agents of BVI Companies involved in wrongdoing. However, there has been some uncertainty as to their scope and application.

What was the uncertainty?
In Ramilos Trading Ltd v Buyanovsky [2016] EWHC 3175 (Comm), the English Commercial Court found that the equitable jurisdiction to provide assistance was precluded by the introduction of English legislation containing a statutory regime which set out circumstances and procedures where courts could help obtain evidence to be used in overseas proceedings. That decision followed the English Court of Appeal in the criminal case of R (Omar) v Secretary of State for Foreign Affairs [2013] EWCA Civ 118.

The BVI has equivalent legislation based on the English legislation, the Evidence (Proceedings in Foreign Jurisdictions) Act 1988 (the "BVI Evidence Act"). This raised the question of whether the BVI Court has jurisdiction to grant Norwich Pharmacal orders in aid of foreign proceedings, or if instead an applicant should follow the letter of request procedure in the BVI Evidence Act (the "Ramilos issue").

What did the BVI Court decide?
In K&S, the BVI Court found that the BVI Evidence Act's statutory mechanisms did not preclude Norwich Pharmacal orders in aid of foreign proceedings. Indeed, it found that if the BVI Court had to look to statute rather than equity as the source of its power to order disclosure of information or evidence in aid of proceedings in a foreign court, then it could rely on section 24(1) of the BVI Supreme Court Act. If a Norwich Pharmacal order is seen as a type or form of injunction, then the Supreme Court Act "empowers the court to grant injunctions in all cases in which it appears to the Court or judge to be just or convenient…"

In coming to its conclusion, the BVI Court was persuaded by the obiter comments of the Privy Council in President of the State of Equatorial Guinea & ors v The Royal Bank of Scotland International & ors [2006] UKPC 7 (a Guernsey case on appeal), that offshore jurisdictions should: "…avoid creating the reputation that [they are] a safe haven for the non-disclosure of information which might otherwise assist in the establishment of liabilities elsewhere – evasion in effect."

K&S is a pragmatic and reasoned decision of the BVI Court. A letter of request under the BVI Evidence Act, which must be made via formal diplomatic and judicial channels, is certainly not a straightforward means of finding out information and can take many months to provide results. Such official requests would take a long time before they could even be complied with and could completely undermine the urgency of the application. Further, the fatal flaw in using the BVI Evidence Act procedure rather than Norwich Pharmacal procedure, is the need for secrecy in order to preserve assets when unscrupulous defendants are involved. Norwich Pharmacal orders preserve a high level of security. They are usually applied for ex parte (where the court hears only the applicant's arguments), without notice to the respondent, and with "gagging" provisions to prevent the respondent from tipping off wrongdoers. This is particularly important when the respondent is the registered agent of a BVI company which may be owned or controlled by the wrongdoers. The Norwich Pharmacal jurisdiction is therefore a quick and appropriate remedy for the Court to provide, especially in cases of urgency.

It was not the first time that the Ramilos issue has arisen and the approach taken in K&S, diverging from the English position, has previously been taken by the BVI Court in the last couple of years. However, the certainty of clarification in a written judgment is welcomed by all BVI litigators. As noted above, the application in K&S was made on three alternative bases, in support of: foreign proceedings; arbitral proceedings; and the BVI Court's freezing orders. The BVI Court only expressly gave reasons for granting the order in support of foreign proceedings, but it seems likely that it is also applicable to the other bases. The decision is K&S has subsequently been applied in a BVI case involving Bedell Cristin, and as far as we know, Wallbank J's order in K&S is not under appeal.

What is the position in Cayman?
In Arcelormittal USA LLC v Essar Global Fund Limited & ors FSD 2 of 2019 (IKJ) (currently under appeal), the Cayman Court, having previously granted to the Plaintiff a Norwich Pharmacal order, was faced with analysing the argument, in favour of setting aside or varying the order, that the equitable jurisdiction to grant the Plaintiff the Norwich Pharmacal order should not have been available to him because such relief cannot be granted in aid of foreign proceedings – i.e. the Ramilos issue. The argument continued that the Plaintiff should have availed itself of the Evidence (Proceedings in Other Jurisdictions) Order 1978 (the "Cayman Evidence Order") because it had not sought to have recognised or domiciled the arbitration award which it was seeking to enforce, and was therefore seeking Norwich Pharmacal relief in aid of foreign proceedings.

The Cayman Court considered the first question to be whether "the two remedies [equitable and statutory] cover precisely the same ground". Kawaley J rejected the notion that the legislature had implicitly intended for the Cayman Evidence Order to completely oust the equitable Norwich Pharmacal jurisdiction. He said:

"I accept that where an applicant for Norwich Pharmacal relief can obtain adequate relief via the statutory route for obtaining evidence for use in foreign proceedings, this Court's equitable jurisdiction to grant corresponding relief falls away and is no longer available."

Kawaley J did not accept that the mere fact that that information was being sought for use in aid of foreign proceedings was an automatic ground for refusing relief. He was of the view that the statutory route could not be said to have been be engaged without a thorough analysis of the facts of each individual case. He viewed the following as relevant:

  • whether the claimant was already possessed of sufficient information to commence proceedings in relation to the relevant wrongdoing;
  • whether it was clear that the substantive proceedings were likely to be commenced abroad;
  • whether effective relief for the wrongdoing which formed the basis for the Norwich Pharmacal application would be rendered nugatory by exclusive recourse to the statutory regime.

Kawaley J did not accept that the Cayman Evidence Order was intended to oust the equitable jurisdiction of the Norwich Pharmacal order in the absence of proof that the statutory regime was accessible in practical terms. He rejected the proposition that the mere fact that proceedings had been commenced abroad was dispositive of the question whether the statutory remedy was accessible.

As noted above, the Cayman Court's decision in Arcelormittal is under appeal. It will be interesting to see how the Cayman Court of Appeal deals with the Ramilos issue, whether it diverges from the English position as Kawaley J did at first instance, and to what extent it considers Wallbank J's decision in the BVI Case of K&S.

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