How tools of disclosure can be used to combat offshore fraud

Out-Law Analysis | 02 Aug 2021 | 2:48 pm | 7 min. read

A recent ruling by a court in the Cayman Islands will be welcomed by victims of fraud that go to court in the UK seeking to recover stolen assets transferred overseas.

The Court of Appeal of the Cayman Islands (CICA) confirmed that the Cayman courts have the power to grant a Norwich Pharmacal Order (NPO) – a powerful investigative tool – in support of potential proceedings in a foreign court, such as the UK courts. This is an issue which has been the subject of debate under English law.

An NPO is a type of disclosure order which allows information to be obtained from third parties ‘mixed up’ in wrongdoing, helping victims pursue those ultimately responsible. NPOs can be used to identify a wrongdoer, trace assets and obtain other information needed by a victim to put together its case against the wrongdoer.

The case

The case considered by the CICA was that of Essar Global Fund Ltd & anor. v ArcelorMittal USA LLC. CICA upheld an NPO requiring two Cayman entities in corporate group Essar to disclose information and documents relating to the assets of another Essar entity, in Mauritius. The Mauritius entity owes an entity in US group ArcelorMittal over €1.5 billion under an arbitral award, and the information was requested in the context of concerns that assets were being stripped from the relevant Essar entity to evade enforcement.

One of Essar’s arguments against the making of the NPO was that such an order cannot be made where the information is sought for the purpose of pursuing foreign proceedings. They argued that a Cayman statute, the Evidence (Proceedings in Other Jurisdictions) (Cayman Islands) Order 1978 (the Evidence Order), provided the exclusive means of obtaining information or documents for use in overseas litigation. They cited case law in England and Wales in which UK legislation similar to the Evidence Order was considered – The Evidence (Proceedings in Other Jurisdictions) Act 1975. In that ‘Ramilos’ case, the High Court held that an NPO could not be used to obtain evidence in support of foreign proceedings.

The CICA’s decision

The CICA found that the Evidence Order and the NPO address different things. The Evidence Order concerned the giving of evidence for the purposes of foreign proceedings, whereas NPOs involve the provision of information. There was, the court therefore determined, no reason to reject the NPO application on the basis that the Evidence Order took precedence, provided care was taken to limit the NPO to its proper scope.

The CICA said that it was difficult to see “why legislation dealing with the giving of evidence in foreign proceedings should be treated as impliedly excluding jurisdiction to order the provision of information necessary to enable foreign proceedings to come into existence at all – such as … information about the identity of the wrongdoer”.

The court recognised that the Evidence Order applied where there had been a request for evidence ”for the purposes of civil proceedings which either have been instituted before the requesting court or whose institution before that court is contemplated”, so that it did not only apply where there were live proceedings. However, given the need under the Evidence Order for a request from a court, it could only apply to ‘contemplated’ proceedings in a jurisdiction whose court procedures allowed for the taking of evidence pre-action. In addition, it considered that proceedings could not be contemplated in any given jurisdiction unless a potential claimant knew critical information, often sought by way of an NPO, such as the identity of the person to sue.

The CICA also considered that further support for granting the NPO was found in another piece of Cayman legislation, the Grand Court Act (2015 Revision), which gives the court power to grant interim relief in relation to foreign proceedings.

The approach in other offshore jurisdictions

The CICA ruling provides helpful confirmation that victims of fraud can, in appropriate circumstances, use the NPO procedure to seek information, as opposed to evidence, from trustees and corporate service providers in the Cayman Islands which is necessary to pursue a wrongdoer elsewhere.

While the judgment diverges from the more restrictive approach of the English courts, it is consistent with the position in a number of other offshore jurisdictions, demonstrating a policy not to allow such jurisdictions to become a safe haven for fraudsters.

The British Virgin Islands (BVI)

The Eastern Caribbean Supreme Court (Virgin Islands) (Amendment) Act 2020 was recently enacted in the BVI. This confirms that where the High Court has a common law power to make an order for the provision of documents and information, such as under an NPO, the BVI court may make such an order even though proceedings will be commenced in another country or there is a parallel statutory power to make such an order.

Guernsey

The Guernsey Court of Appeal previously held that the court has the power to grant NPOs in aid of proceedings in other countries where “necessary and appropriate to assist in achieving justice”. This conclusion was due at least in part to the importance of financial services to Guernsey and concern that it should not become “a safe haven for those wishing to evade their financial liabilities”. 

The court did not consider the interplay with The Evidence (Proceedings in Other Jurisdictions) Act 1975, which has been extended to the Bailiwick of Guernsey, and the decision pre-dates the 2016 decision of the High Court in London in the Ramilos case that Essar sought to rely on in the Cayman Islands.  However, the CICA decision will be relevant guidance should the point arise in future, particularly given the desire to protect the reputation of the bailiwick.

Jersey

In a ruling in 2010, the Royal Court of Jersey gave a clear steer that in appropriate circumstances, where “convenient in the interests of justice”, an NPO could be granted in support of proceedings elsewhere, endorsing the view expressed in an earlier judgment that it is policy in Jersey to ensure “commercial facilities available in Jersey” are not “used to launder money or mask criminal activities here or anywhere else”. 

The Evidence (Proceedings in Other Jurisdictions) Act 1975 only extends to Jersey in relation to criminal proceedings. Jersey has its own legislation on the taking of evidence in foreign proceedings, the Service of Process and Taking of Evidence (Jersey) Law 1960, but there has never been any suggestion that this curtails the Jersey courts’ ability to grant relief under an NPO.  

As a result, the Jersey courts will likely be willing to grant NPOs in support of foreign proceedings in appropriate circumstances, and to feel unconstrained by the more restrictive English approach.

The Isle of Man

The Isle of Man courts have consistently demonstrated their willingness to assist foreign courts in appropriate circumstances. In 2011 a ruling confirmed that granting NPO relief involving the provision of information in support of foreign proceedings was not inconsistent with the statutory regime, under which the court’s powers in relation to the provision of evidence are limited to the 1975 Act, as it applies to the Isle of Man.

English judgments are of persuasive authority, so the High Court’s decision in the Ramilos case may cause Isle of Man courts to apply greater scrutiny to applications for NPOs in support of foreign proceedings in future. However, the Isle of Man courts will also look to other common law jurisdictions for guidance, so the CICA’s ruling in the Essar case is likely to be significant, should this issue arise for further consideration.

Will the English courts follow suit?

In light of the decision in the Ramilos case, victims currently face difficult arguments if they wish to obtain an NPO from the English courts in support of proceedings elsewhere. However, it has long been emphasised in English case law that NPOs are a flexible remedy which should adapt to help the courts deliver justice. Given the importance of the UK playing its part in the fight against global corruption, it is hoped that the English courts may be encouraged by the CICA ruling in the case of Essar to revisit the availability of NPOs in support of foreign proceedings. An applicant’s ability to persuade an English court to make such an order is, however, likely to turn on the specific facts, and they may need to take their case through appeal courts.

Practical implications

The CICA ruling in the Essar case could yet be appealed to the Privy Council. However, the judgment, as it stands, is a welcome development in the fight against international fraud. However, there are number of things victims looking to use an NPO to seek information from third parties in offshore jurisdictions, or in England, need to consider:

  • It is necessary to understand the detail of the law in the particular jurisdiction involved as to whether, and in what circumstances, an NPO is available in support of proceedings in another jurisdiction.
  • It is important for practitioners not to overstep the boundaries of the NPO jurisdiction by seeking wide-ranging material amounting to evidence rather than information. There are other important limits to the scope of an NPO to observe too: for example, generally an NPO should not be sought against someone who was themselves a wrongdoer, and should be limited to those simply ‘mixed up’ in wrongdoing.
  • It is important to consider whether there is some viable alternative means of obtaining the information, such as under relevant legislation for the provision of evidence in support of overseas proceedings. Courts will be less likely to grant an NPO where such an alternative course is reasonably available.
  • Where there is doubt about the availability of an NPO in support of foreign proceedings, strategy is important. Consideration should be given to whether there are proceedings which might be issued in the same jurisdiction. An English court may also be willing to grant an NPO in support of a worldwide freezing order made by it.Specialist advice is needed on potential routes to the information.

A version of this article was first published in the New Law Journal. This article was produced in partnership with Anthony Williams, Jared Dann and Claire Corkish, experts on the law on offshore assets at Appleby in Guernsey, Jersey and the Isle of Man respectively.