UK: "Disclose At Your Peril" – English Court Of Appeal Addresses Appropriate Response To Threatened Norwich Pharmacal Applications

Last Updated: 18 June 2019
Article by Robert Slattery and James Whitaker

The Court of Appeal's recent decision in Jofa Ltd & Anor v Benherst Finance Ltd & Anor1 provides a timely reminder of issues that commonly arise, as well as important practical guidance, in the context of requests for disclosure from a third party and applications, or threatened applications, for "Norwich Pharmacal" orders, and the competing pressures of responding to a threatened order on the one hand, whilst honouring duties of confidentiality on the other. The key take away message for respondents to such requests seems to be: tread carefully. Resisting disclosure of information, particularly if it is potentially confidential, until a court order has been issued, will be a reasonable position to adopt. Indeed, where duties of confidentiality are involved, complying with a request for disclosure in the absence of an order may be hazardous.

Background
Norwich Pharmacal Orders, familiar territory for many financial institutions, reflect the equitable jurisdiction of the Court to order a third party – not directly involved in a dispute – to provide to the applicant information or documents thought to be relevant to a wrong that has been done, to enable the applicant to pursue the alleged wrongdoer. The principle was first established in the seminal case of Norwich Pharmacal v Customs and Excise Commissioners 2 and is a valuable tool for prospective litigants seeking to establish the basis of putative claims.

Jofa v Benherst

The present case involved two companies, Benherst Finance Limited and Chestone Industry Limited (the "Investors"), seeking Norwich Pharmacal relief against small company, Jofa Limited ("Jofa"), owned by Mr Farah, as well as against a bank. The Investors had participated in a joint venture to purchase and redevelop a property in London SW7 (the "Project") and had engaged a company called JMT Property Limited ("JMT"), whose sole director and shareholder was Mr Elie Taktouk, to manage the Project. During the Project, between February 2015 and February 2016, JMT made periodic cash calls, often supported by invoices (certain of which were purportedly issued by Jofa), said to be required to pay contractors and suppliers. However, during the course of a review of the Project by a chartered surveyor in May 2016, it became apparent that far less work had been done to redevelop the property than Mr Taktouk had represented. Indeed, the value of the work done was estimated to be in the region of only £250,000, significantly less than the total value of the cash calls of some £2.2 million, of which the Investors had paid their share of approximately £925,000. Consequently, the Investors commenced proceedings alleging that the periodic cash calls made by Mr Takouk had been fraudulent.

In June 2017, the Investors' solicitors wrote to Mr Farah informing him that they were instructed to pursue a criminal investigation and, thereafter, to consider initiating a private prosecution against his company and/or him personally, as well as against Mr Taktouk, on the basis of what were said to be reasonable grounds for believing that criminal offences had been committed, including conspiracy to defraud and fraud by false representation.  The letter, which contained a long list of questions, noted that Mr Farah was under no obligation to answer the questions, and that any answers he gave might be used in evidence in any prosecution that might follow.  In addition, the letter noted that should Mr Farah fail to answer the questions, the Investors might seek to rely on such failure as evidence against him, and threatened to refer the matter to "any criminal investigation agency, including the police" and to pursue confiscation proceedings following any criminal prosecution.  During a subsequent telephone conversation with the Investors' solicitors, Mr Farah, who denied knowing anything about the invoices in question, said that he would be prepared to meet the solicitors for a formal interview, which would be conducted under caution. 

In December 2017, by which time the interview had still not been arranged despite various exchanges between the parties and their representatives, the Investors' solicitors issued a "pre-action letter" to Mr Farah's representative, indicating that the Investors would seek a Norwich Pharmacal order in the High Court in respect of certain categories of documents.  No response was provided to the letter and, in March 2018, the Investors issued an application for the order, supported by a lengthy witness statement and extensive supporting documents.  The Investors stated that they would seek their costs of the application in circumstances where Jofa and Mr Farah should have acceded to the document requests voluntarily.  At the hearing in March 2018, Mr Farah, who attended as a litigant in person, indicated that if the court ordered Jofa and Mr Farah to disclose certain documents identified by the Investors in a draft order, he would comply. 

The Investors also sought, at the same time, Norwich Pharmacal relief requiring JMT's bank to disclose bank statements and other documents relating to the bank accounts of Mr Taktouk and JMT.  The bank had indicated in correspondence that, although it did not consent, it would not oppose the order sought, and the Court was told that the Investors had agreed to pay the bank's costs of complying with any order that was made, but that no order for costs of the application should be made. 

The first instance judge awarded both of the Norwich Pharmacal orders sought.  Addressing the issue of costs, the judge adopted as her starting point the position that "the usual order would be for no order to be made for the costs of the application", and was satisfied that it was appropriate to make a costs order against Jofa and Mr Farrah, on the basis that a proportion of the Investors' costs would have been avoided had a response to the December 2017 letter been provided, or if Jofa and Mr Farah "had taken a neutral position, for example".  Mr Farah was ordered to pay £23,000 in costs, which he appealed.

The Court of Appeals' findings – responding to Norwich Pharmacal applications

The Court of Appeal quickly identified that the first instance judge had adopted the wrong starting point on the issue of costs for Norwich Pharmacal applications; in fact the correct starting point is that the applicant should normally be ordered to pay the costs of the party subject to the order to give disclosure3 .  As such, the Court of Appeal was required to exercise its own discretion as to the extent of the presumption and the circumstances which would justify a departure from the rule.  

In reaching its conclusion that the costs order against Jofa and Mr Farah should be set aside, the Court of Appeal noted the following important principles:

  • Norwich Pharmacal applications are not ordinary adversarial proceedings, where the general rule is that the unsuccessful party pays the costs of the successful party, particularly given that the respondent to an application would have no means of recovering costs from the wrongdoer.
  • While the Investors had initially made allegations of wrongdoing against Jofa and Mr Farah, those allegations were not maintained by the time of the application; and the Investors' application had not been made under CPR 31.16 on the basis of a prospective claim.
  • It was hard to envisage circumstances in which it would be just to award costs against a respondent to a Norwich Pharmacal application where the respondent, before agreeing to disclose the documents, "has done no more than require the applicant to satisfy the court that such an order is appropriate".
  • The starting point was that the respondent to a Norwich Pharmacal application does not owe any legal duty to the applicant to provide information without a court order, and is entitled to require the matter to be submitted to the court at the expense of the party seeking disclosure.
  • Jofa and Mr Farah had not in fact opposed the Investors' applications; indeed, Mr Farah had indicated that he would cooperate with enquiries provided that his and Jofa's costs of doing so were reimbursed, and this requirement was a reasonable one.
  • While there is no pre-action protocol that applies to Norwich Pharmacal applications, it was reasonable to expect a party who receives a request to provide information, supported by evidence that the party may have been mixed up in the wrongdoing (albeit innocently), to respond to that request, explaining, if relevant, the grounds on which such an application would be opposed. In the present case, however, while Mr Farah had not responded to the December 2017 letter, it was hard to see how the Investors had been prejudiced by that failure to respond, given that they would still have had to make the application if a response had been provided indicating that the material would not be disclosed in the absence of a court order.

The Court also sounded a cautionary note in the particular context of banks faced with Norwich Pharmacal applications, in light of banks' duties to their customers to keep the customers' affairs confidential. While those duties do not require the bank to oppose an application for disclosure, as Lord Justice Leggatt observed, "if a bank were to give such disclosure without an order from the court, it would be acting at its peril, as it would be exposed to a potential claim by its customer for breach of confidence." In the present case, this distinguished the bank's position from that of Jofa which, as a building contractor, would not ordinarily owe such duties to maintain clients' information confidential.

Key take aways

Jofa provides useful guidance for parties faced with threatened applications for Norwich Pharmacal relief.  While requests should not be ignored (and there may be costs consequences of doing so), providing disclosure in the absence of an order may entail significant risks, particularly if potentially confidential information is involved.  Adopting a neutral position in respect of an application, neither consenting to, nor opposing, the application, may also reduce the risks of a respondent being ordered to pay the costs of the application.  With regard to the costs of complying with Norwich Pharmacal orders, the general rule is that the applicant should pay the costs of the party ordered to provide disclosure.  

Footnotes

1 [2019] EWCA Civ 899 (24 May 2019)

2 [1974] AC 133

3 Cartier International AG v British Sky Broadcasting Limited [2018] UKSC 28, approving Totalise Plc v The Motley Fool Ltd [2001] EWCA Civ 1897

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