Useful Lessons on approaching Norwich Pharmacal applications: A1 and A2 v. R1, R2 and R3 [2021] HKCFI 650

19 March 2021

This article was authored by Michael Lok

Introduction

Norwich Pharmacal relief is granted where “innocent parties are caught up or have become involved in the tortious or wrongful activities of others and thus facilitating the perpetration (or continuation) of such activities”: A Co. v. B Co. [2002] 2 HKC 497 at para. 10 per Ma J (as his Lordship then was).

While the substantive principles are trite and need not be revisited in this article, the ‘practical side’ of the applications has always required some careful consideration.

In Mr. Justice Coleman’s recent decision (which has been anonymized given the nature of the proceedings), a number of “points of wider interest” arose, relating to (1) the making of the application ‘ex parte on notice’; (2) how properly to make full and frank disclosure; and (3) orders relating to bank accounts not held in Hong Kong.

This article shall consider each of the above in turn.

With or without notice?

It goes without saying that based on principles of natural justice, applications should generally proceed on an inter partes basis. Briefly stated, all parties are to be heard, save in the most exceptional circumstances where extreme urgency or secrecy so requires. This is common sense. 

In this instance, the Applicants sought relief against three respondent banks (“Banks”) in respect of disclosure relating to four bank accounts. It proceeded on an ex parte basis.

In the lead-up to the ex parte application, the Applicants took the “slightly unusual approach” (para. 15) of writing to the Banks 5 days before the application papers were delivered to court informing the Banks of their intention to make the subject application, and providing relevant documents including the draft affidavit material (without exhibits).

In the words of Coleman J, the “unusual aspect” is that the Banks were told about a potential ‘gagging order’ such that the Banks were asked to treat the documents received as “strictly private and confidential, and to refrain from taking any steps which would be contrary to the gagging order including notifying any third party (as well as the relevant account holder or connected persons)” of the contents (para. 15).

This was considered to place the Banks “in a difficult position vis-à-vis their own customer, to whom they owe certain obligations or duties arising from the banker/customer relationship” (para. 16).

Coupled with the fact that the Banks were actually given “significant advance notice of the intended application” (para. 18), Coleman J came to the view that there was no need to proceed on an ex parte basis in this case.

The “correct, or better, practice”, according to Coleman J, is found in the decision of DHCJ Maurellet SC in Asiya Asset Management (Cayman) Ltd v. Dipper Trading Co Ltd [2019] HKCFI 1090 (para. 19). In particular, the learned Judge agreed that the correct procedure which “should be followed in all save the most exceptional of cases” is that as stated by DHCJ Maurellet SC, namely:-

(1) First, the plaintiff seeks on an ex parte without notice basis a gagging order against the bank pending the hearing of the Norwich Pharmacal discovery against the bank either on an inter partes basis or at the very least on an ex parte basis but with notice. Whatever notice period is given should normally be sufficiently long so that the bank can meaningfully make submissions, if it thinks it appropriate to do so.

(2) Second, at the hearing of the Norwich Pharmacal discovery application against the bank, the court will then have the benefit of the submissions of the bank, if any, while the plaintiff will on the other hand be protected by the gagging order until the conclusion of the application.

(3) Third, the court can in an appropriate case grant a further brief period for the gagging order to continue, to allow the plaintiff to make such applications as it sees fit to protect its interests.

At para. 26, the learned Judge explained that it was considered important to highlight the above to practitioners, which casts the proper balance of interest between (a) the party seeking the information from the bank and (b) the bank’s customer. Indeed, given the “unusual approach” taken by the Applicants, it was considered that the proper procedure identified above would not have been to the Applicants’ detriment.

Key Takeaway:

Do follow the procedure laid down by DHCJ Maurellet SC (i.e. a two-stage process) save in exceptional circumstances. Where the procedure is not followed, the exceptional circumstances said to warrant the departure should be identified and explained to the ex parte Judge.

Making Full and Frank Disclosure

Coleman J next went on to highlight that voluminous materials had been placed before the Court for the purposes of the ex parte application. 

Thus, the learned Judge reiterated that it would not suffice to simply place the materials before the ex parte Judge, without explaining their significance. Indeed, “the greater the amount of material placed before the court, the more likely the court will need – and is entitled to – clear sign-posting to the various aspects of that material (which, hopefully, also has been organised in a logical way, making it easier to find, follow and understand)” (para. 34). This, in the ex parte context, means “specifically drawing the attention of the court to those matters, and doing so fully as well as frankly” (para. 35).  

Key Takeaway:

Needless to say, the parties and their representatives should specifically “bring to the attention of the court those matters which the court must, or likely will wish, to take into account in the context of the particular application” (para. 34).

This means, amongst other things, at least summarising “in the body of the affidavit (and/or in the skeleton argument) what particular position had been set out in respect of what specific allegation of wrongdoing – as well as any suggested response given by the Applicants to that position” (para. 36).

Bank Accounts Outside Hong Kong

The Banks operate in Hong Kong but two of the four accounts in question are with the Macau branches of two of the Banks. All of the Banks are incorporated in Hong Kong, and neither of the respective Macau branches of the two banks is a separate legal entity.  Instead, each is an overseas branch and part of the same Hong Kong entity.

This opens up the question as to whether the Hong Kong Court may grant Norwich Pharmacal relief in respect of the accounts maintained outside Hong Kong.

In the absence of any relevant Hong Kong authority hitherto, Coleman J cited the English High Court decision in Credit Suisse Trust v Intesa San Paulo SPA & Banca Monte Dei Pasche Di Siena [2014] EWHC 1447 (Ch) (see para. 47). 

The learned Judge went to hold that, first, there is no authority in Hong Kong or other reason which stands in the way of the relief sought.  In particular, Coleman J was of the view that “it might be thought straightforward that one legal entity has possession, custody or power over the documents held by any part of that entity, including in its branches overseas. Indeed, this would perhaps be thought a stronger position than where the branch is local and the main bank overseas” (para. 52).

Further, at para. 53, it was held that “on the materials in particular relating to the regulation by the HKMA, it seems to me that there is the likelihood that each of Bank A and Bank B can have access to – in other words, they have control or power over, and can obtain possession of – the documents”.

Key Takeaway:

Relief is potentially available even in the case of a bank account located outside Hong Kong. However, the detailed circumstances surrounding e.g. the location of the account and its precise relationship with the bank in question should be fully explained, as in the present case.

Further, it would be useful to confine the order to “requiring disclosure of documents and information in the Banks’ respective possession, custody or power” (para. 54) because, in the words of Coleman J, “to the extent that the inference invited – that the Hong Kong operations likely have access to documents and information contained in their branches in Macau – turns out to be incorrect, then that simply means that Bank A and/or Bank B would not be required to disclose documents pursuant to the order”.

Postscript

As his Lordship’s analysis went on to demonstrate, the principles surrounding the orders being made are rather well-established. Likewise, the facts are usually relatively straightforward which, at least for the present purposes, ought not create too many difficulties. That said, Coleman J’s recent decision should serve as a helpful reminder that careful consideration and analysis is required before launching the application, however straightforward it may seem at first blush.

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