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Fraud case shows importance of internal investigations

A recent High Court case demonstrates that companies will usually need to carry out their own internal investigations before being able to successfully obtain certain court orders in cases of suspected employee fraud, an expert has said.

Just before Christmas, the High Court dismissed an application by an oil exploration company for a so-called 'Norwich Pharmacal' order, seeking information as to the source of allegedly privileged documents that had ended up in the hands of a counterparty in the context of a claim for breach of confidence, breach of contract and breach of database rights. The court did so after finding that it was "far from clear" that the company, Eni Norge, could not obtain the information from within their own organisation.

"They have not yet interviewed the one person … who it is known passed at least one confidential document to the claimants," the judge, Mr Justice Zacaroli, said. "As against that, the claimants are in no better position than the defendants to identify and provide full information in respect of the alleged wrongdoers."

The judge also concluded that the company's case that there had been any wrongdoing in the first place was very weak. Against that backdrop, the order sought would "place a burden on the claimants out of proportion to the strength of the claim that wrongdoing existed, the likely ability of the claimants to provide helpful information, and the risk of further disclosure of privileged information to them", he said.

A Norwich Pharmacal order, named after the 1974 House of Lords case in which one was first granted, is a special type of disclosure order which can be obtained from a court in very limited circumstances. It allows a victim of wrongdoing to obtain evidence and information from an innocent third party that has become mixed up in that wrongdoing, such as a bank or accountant. In some circumstances, it can even be used without informing the person that has committed the wrong.

The facts of this case were unusual in that Eni Norge sought the order against a backdrop of ongoing litigation against the other party, Blue Group, rather than against a third party. While the High Court declined to grant the order sought in this case, it concluded that the mere fact of the existing proceedings was insufficient to negate the need for such an order, as the alleged wrongdoing that was the subject of the application was not an issue in those proceedings.

Civil fraud and asset recovery expert Alan Sheeley of Pinsent Masons, the law firm behind Out-Law.com, said that the decision was the latest in a number of recent cases which "have emphasised how fact-specific Norwich Pharmacal applications are, and therefore the care that needs to be taken to avoid the wasted costs of an unsuccessful application".

"The ability to obtain Norwich Pharmacal orders to identify suspected wrongdoers is a key tool in the armoury of victims of fraud," he said. "However, as this decision demonstrates, a large number of considerations have to be taken into account when deciding whether to seek such an order and in making the application."

"Just one of these factors is whether there are alternative ways of obtaining the information needed. In a case like this involving a suspected employee fraud, it will generally be necessary to carry out an internal investigation first, in order to try to identify the wrongdoer from the organisation's own systems and staff. Advice will be needed on how best to conduct such an investigation and at what point it becomes appropriate to go down the Norwich Pharmacal route," he said.

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