Obtaining the right evidence—the key to successful recovery in civil fraud litigation in England and Wales

Rachel Cropper-Mawer
Clyde & Co LLP, London
Rachel.croppermawer@clydeco.come

Tania Forichon
Clyde & Co LLP, London
tania.forichon@clydeco.com

Evidence plays a critical role in proceedings and particularly in civil fraud litigation. It is often unlikely that a claimant will, from the outset, have at hand all the proof required to bring its case with cogent evidence: they may instead expect to uncover the ‘smoking gun’ through tactical pre-action and interim applications. It is even less likely that they will know where the proceeds of fraud or stolen assets have gone. Crucially, without being able to trace those assets (to then freeze and seize them), what is the point in proceeding on a civil basis, the benefit of which is supposed to be speed and recovery, as opposed to waiting for a criminal investigation and prosecution or instigating a private prosecution.

In this article, we discuss some of the crucial weapons in the fraud lawyer’s armoury, three of the applications available in English proceedings to obtain key evidence, namely:

1. Norwich Pharmacal Orders;
2. non-party Disclosure Orders under the Civil Procedural Rules (CPR) 31.17; and
3. orders for disclosure from separate proceedings.

In fraud cases, it may be advisable to seek these orders on an ex parte basis and, as appropriate, build in ‘gagging’ restrictions such that a third party may not tell the potential or actual defendant that they are being ordered to provide information.

Norwich Pharmacal Orders

A Norwich Pharmacal Order (NPO) is a disclosure order available in England and Wales granted under the court’s equitable jurisdiction which crucially allows for information to be obtained from third parties who are (innocently or not) ‘mixed up’ in, so as to have facilitated, the wrongdoing. The relief granted differs from applications for disclosure under CPR 31.17 (discussed below) as NPOs can be sought pre-action and can be used to procure the provision of information (as opposed to just documents) which is not possible under CPR 31.17.

NPOs are only likely to be granted by the court if it is necessary in the interests of justice and there is no CPR provision that would provide the appropriate relief. The following three threshold conditions need to be met:

1. a wrong must have been carried out, or arguably carried out, by an ultimate wrongdoer;
2. there must be the need for an order to enable action to be brought against the ultimate wrongdoer; and
3. the person against whom the order is sought must: (i) be mixed up in so as to have facilitated the wrongdoing; and (ii) be able, or likely to be able, to provide the information necessary to enable the ultimate wrongdoer to be sued.[1]

NPOs are analogous to injunctions and the court will often require the applicant to provide a cross-undertaking in damages. They can be granted ex parte, although an informal notice may be provided unless there is a need for secrecy and urgency. If there is such a need, a ‘gagging order’ can also be sought to prevent the non-party respondent from disclosing information about the application to other entities, including the alleged fraudster himself.

It is anticipated that the information obtained will provide evidence of the identity of the wrongdoer(s), or the evidence of the wrongdoing, and assist potential claimants to investigate further and pursue those ultimately responsible for their losses. This also ensures that claimants are able to commence proceedings against the ‘right’ defendant(s). While NPOs have remained an invaluable tool since their development 50 years ago, they have gained particular prominence in recent times as they have been granted in a number of cryptocurrency disputes to assist with uncovering the identity of the wrongdoers and tracing the lost property.

Although not the focus of this article, an order requiring a bank to give disclosure of a third party’s information to assist a victim of fraud to trace assets is referred to as a Bankers Trust Order (BTO). The test for obtaining a BTO is slightly different from that for an NPO as although it requires the applicant to have a proprietary interest in the claim, the respondent to a BTO does not need to be ‘involved’ in the wrongdoing.[2] In practice, an application is often made on both bases.

Increasingly, fraud is committed by sophisticated fraudsters operating through international networks using foreign entities, intermediaries and services providers. There was, until recently, arguably no gateway available for serving NPOs and BTOs out of jurisdiction (although in one case, an English court did grant permission for a BTO to be served against two foreign exchanges under Gateway 3).[3] To the relief of claimants, in October 2022, the game-changing CPR Gateway 25 was introduced to allow, under certain circumstances, for NPOs (and BTOs) to be served out of jurisdiction on foreign third parties with the permission of the court. However, even with the enactment of Gateway 25, the court may still be hesitant to grant permission where there is a risk of prejudice to the respondent which outweighs the interest of the applicant (e.g. a bank breaching confidentiality obligations to its customers)[4] and where there is an alternative remedy available under local laws.[5]

Although Gateway 25 may not provide a ‘magic bullet’, this change will inevitably result in the increased use of NPOs in cross-border fraud disputes.

Non-party disclosure orders under CPR 31.17

Once the proceedings are underway, an English court has explicit powers under CPR 31.17 to make an order for the disclosure of documents (including electronic documents) against a non-party to further a substantive action.[6] This might, for example, be required where the electronic mailbox of a defendant or a witness sits on a server belonging to another entity to which the defendant/witness is no longer able to access; when a defendant’s witness, who is not a defendant, holds documents but refuses to produce them voluntarily; or simply when disclosure requested from a completely unrelated entity is not forthcoming.

It will be rare for a non-party to agree to hand over information without a Court Order, for a whole host of liability and data privacy reasons. However, once the application has been made, a non-party may choose not to defend it. The applicant will also normally have to bear the non-party’s costs of dealing with the application. For these reasons, in order to exert some pressure, a draft application to the court can be tactically sent to the non-party in question, ahead of filing, to quicken the process, and avoid wasting costs and court time. It is sensible to bear in mind that the iterative process of negotiating a consent order may be unnecessarily prolonged by uncooperative non-parties and, as this may need to be factored into the strategy or procedural timetable to the extent possible, claimants should not hesitate to raise this issue with the court as necessary at a CMC or in correspondence. The pressure of a return date will often encourage the parties to swiftly reach an agreement.

The court will be conscious of the careful use of this intrusive jurisdiction and any such application will need to be supported by strong evidence. An order under CPR 31.17 remains the exception rather than the rule. The court will adopt a three-stage approach when deciding the application as follows[7]:

1. Are the documents and classes of documents sufficiently specified to be permissible under CPR 31.17?
2. Are those documents likely to support the applicant’s case or adversely affect the defendant’s case?
3. Is disclosure necessary to dispose fairly of the claim or to save costs, and should it be ordered as a matter of discretion?

The court is likely to be rigid in its application of this test, particularly in relation to the first stage. It is crucial that (1) the non-party knows what he needs to disclose without having to familiarise himself with the details of earlier proceedings; and (2) the request and classes of documents must also be sufficiently particularised.

There is the possibility that some of the documents from the non-party may be privileged and the non-party may not have a legal team to review these and/or the applicant may not want the non-party to be allowed to make that decision. In these cases, a supervising solicitor will need to be instructed by the applicant to carry out a review of the documents to ensure that (1) the documents fall within the scope of the order sought; and (2) privileged documents are ring-fenced. It is sensible for the claimant to have oversight of this process, ideally by drafting detailed instructions to the supervising solicitor to ensure that they are familiar with the factual matrix of the case and the task involved. Nevertheless, the non-party will certainly want to make sure that it agrees to the terms of the instruction prior to handing over the documents.

To ensure that evidence is not destroyed in the ordinary course of business or otherwise, claimants need to seek legal advice early and act promptly in making these applications (although it should be noted that the jurisdiction of the court under CPR 31.17 is only engaged when proceedings have commenced). If there are particular concerns that evidence may be destroyed, the claimants should consider applying for pre-action evidence preservation and/or delivery up orders. Defendants will also need to be reminded of their extensive duties to preserve documents, particularly for matters conducted in the Business and Property Courts where the new rules explicitly impose an obligation to take reasonable steps to ensure that any agents or third parties who hold documents on that party’s behalf do not delete or destroy documents that may be relevant to an issue in the proceedings.[8]

However, even in cases where electronic data has been deleted, all is not lost as non-parties can be ordered by the court under CPR 31.17 to recover, to the extent possible, deleted electronic data such as Telegram messages and emails.[9] It also remains open to claimants to instruct professional data recovery services to retrieve deleted data from the non-party (and the costs of this exercise will typically need to be borne by the claimants).

In cross-border disputes, claimants must be cautioned that it is not settled law as to whether Gateway 20 can be used to serve orders under CPR 31.17 out of jurisdiction, although a recent authority has suggested this may be possible when the documents in question are located within England and Wales.[10]

Disclosure from separate proceedings

To protect a litigant’s privacy and confidentiality, the general rule in England and Wales is that, except where a court otherwise gives permission, disclosed documents may be used only for the purposes of the proceedings in which they were disclosed.[11] However, there will be occasions where those documents are highly relevant to other proceedings involving the same party or another party, or relating to satellite litigation elsewhere in the world. The court will carefully consider whether to permit collateral use of disclosed documents, whether in support of an application for an injunction, new proceedings or another disclosure application. Such orders can be granted ex parte where it is justifiable to do so.

Most commonly, this issue arises in fraud cases or where there are multiple cases over a number of years, in different jurisdictions, against different parties, but where the factual matrix is common to all cases. From our experience, this can also happen when, in the course of an investigation, a client realises that documents disclosed by a party in historic or ongoing proceedings are relevant to the matter now being investigated, or to the new proceedings against the disclosing party. Importantly, such documents may shed light on assets or on a wider or previously unknown conspiracy or cause of action. Often, the disclosure of such documents becomes a contentious issue as the disclosing party is unwilling to accede to the request and seeking consent may involve tipping them off to the claim.

The first problem is the age-old ‘chicken and egg’ debate in that the use of documents for the purpose of obtaining legal advice about those documents is itself a collateral purpose and a breach of the rule. In practice, if the application is justifiable then the courts will see this as a modest collateral purpose and ratify this breach of the rule as being in the interests of justice.[12]

The pivotal question then becomes: when will the court permit collateral use? There is no self-contained list of circumstances where the court will allow this. Instead, the court must consider whether to do so would be in the public interest of uncovering the truth. Full disclosure operates in favour of releasing relevant documents from the hub into satellite proceedings whilst ensuring no significant injustice is done to the disclosing party.[13] This must also be carried out in the interest of justice which involves considering the interest of the party seeking to use the document and that of the party protected by the CPR 31.22 Order.[14]

An application for such an order can be made ex parte if there is a compelling enough reason to do, in which case the respondent is allowed to argue why the documents should not be made available for wider distribution at a return date. Again, a ‘gagging order’ can also be sought to prevent the fraudster from being tipped off.

Legal strategy

A plethora of weapons is available to the civil fraud lawyer seeking to obtain cogent evidence in support of its client’s case. Familiarity with the scope, applicable tests, conditions and restrictions of each type of application available is paramount in designing the case strategy. In most cases, the key is to get instructions early, act fast and, where required, involve third-party investigators who may be able to quickly retrieve key information to advise clients on which applications need to be brought and against whom.

International fraud lawyers are also advised to keep abreast of developments in this space, particularly in terms of the gateways available for service out of the jurisdiction.