No stone unturned: Tools of the trade available to the asset recovery lawyer in Guernsey

Abstract

The Bailiwick of Guernsey has long been determined to avoid being labelled a "black hole" for ill-gotten gains to be secretly stashed away. In this article, John Greenfield, David Jones and Robin Gist of Carey Olsen Guernsey set out the weapons at the disposal of the asset recovery lawyer – many of which will have a familiar ring about them. Some however, perhaps less so. This article analyses the methods available to extract the information that any claimant needs from other parties (reluctant or otherwise); obtaining of pre-emptive Court Orders to preserve assets that have been uncovered; assisting actions in other jurisdictions and finally bringing into play the full might of an insolvency practitioner with all the powers at their disposal.

Knowledge

The old adage that “knowledge is power” is particularly relevant and appropriate here. It is essential to any successful investigation to be able to consider and understand as much of the relevant documentation as it is possible to track down. The tools available to a Guernsey lawyer for obtaining such information include:

• Third party disclosure:

1. Norwich Pharmacal Orders;
2. Anton Piller Orders;
3. Bankers Trust Relief with Freezing Orders;
4. Bankers Books Orders.

• Mutual international assistance:

1. The Commission Rogatoire;
2. International judicial assistance and cooperation;
3. Foreign insolvency and cross border cooperation.

• Disclosure and specific disclosure in the course of proceedings;
• Entitlement to inspect documents referred to in pleadings etc.

We shall be taking a brief look at each of these remedies and processes. It should be noted that many of these applications are often heard ‘In Camera’, but many important principles have been established and are widely understood in the Royal Court of Guernsey (‘the Court’).

Third Party Disclosure

The principles established in Guernsey are very similar to those in England and Wales and other Commonwealth jurisdictions – save that there is no formal pre-action protocol procedure and (at least in asset recovery cases) there is no formal pre-action disclosure. However, the following remedies are available to obtain early disclosure:-

1. Norwich Pharmacal Orders 

The Court in Guernsey will apply the principles set out in the House of Lords decision in Norwich Pharmacal v. Commissioners of Customs and Excise (1974) UK HL6, per Lord Reid:

"If through no fault of his own a person gets mixed up in notorious acts of others so as to facilitate their wrongdoing he may incur no personal liability but he comes under a duty to assist a person who has been wronged by giving him full information and disclosing the identity of the wrongdoers.  I do not think that it matters whether he became so mixed up by voluntary action on his part or because it was his duty to do what he did… justice requires that he should co-operate in righting the wrong if he unwittingly facilitated its perpetration".

A typical scenario involving Guernsey would be where corporate vehicles which are administered in Guernsey (and may be Guernsey registered companies) and have a corporate service provider resident in Guernsey are used by a wrongdoer in another jurisdiction to facilitate the transfer of funds in the hope that they would become out of reach of the victim.

A Norwich Pharmacal application is particularly relevant where the victim needs to identify the appropriate defendant or defendants to his substantive action. The Royal Court has imposed some limitations on the scope of this type of application – notably by the Court of Appeal in Guernsey in the case of Systems Design Limited v. Equatorial Guinea (President) 2005-2006 GLR page 65. This was a case arising out of the unsuccessful coup to overthrow the president of Equatorial Guinea by Simon Mann and others where it was alleged that funds to assist the coup had been, or were being, held in Guernsey and the President wished to identify those persons responsible. The application failed for a number of reasons but the Court took the opportunity to lay down some principles including:

1. The application must not be merely for the purpose of obtaining pre-trial discovery of what a witness might say if called at trial;
2. The third party with the relevant information must have become involved in the wrongdoing but not to such an extent that such third party could or should be joined as a party to the substantive proceedings – indeed, it may be, and usually is, wholly innocent;
3. The applicant must identify the wrongdoing about which the complaint is made;
4. The information sought can include identifying the wrongdoers, seeking to understand the existence or nature of the wrongdoing and also the location of assets upon which a judgment might be enforced;
5. The "wrongdoing" must be such as to be recognised as wrongful in the eyes of the law, whether criminal conduct or the infringement of a civil right which the law can protect;
6. It is not a condition that the applicant must have started or intend to start civil action in respect of the wrongdoing.  It is enough that he has a legitimate interest to protect whether by way of seeking redress or by lawfully preventing further wrongdoing;
7. The applicant has to identify the purposes for which the disclosure will be used when made so that the Court will be able to restrict such use if necessary;
8. The power towards discovery is discretionary and must be deemed to be "essential and necessary" to assist him in achieving justice.

2. Bankers Trusts Orders

Again the Royal Court in Guernsey has confirmed that it would follow the principles established by the Court of Appeal in England and Wales in the case of Bankers Trust v. Shapira and Others (1980) 1 WLR 1274 to enable the Court to order disclosure of information not only to identify a wrongdoer, but also to enable a plaintiff to trace assets that had allegedly been obtained by fraud. In such, there must be:

1. Strong evidence of fraud – such orders go against the normal rules of confidentiality so cannot be made lightly, and it is the evidence of fraud which militates against the usual confidentiality principles;
2. Good grounds for asserting that the assets in question belong to the applicants; and
3. A demonstrable need for urgent action.

The Royal Court has further extended the ambit of such orders in the case of Seed International Limited v Tracey, unreported, 3 November 2003 and approved by the Court of Appeal on the 18 December 2003. In this case it was stated that the Court should exercise its power to grant such orders not only in relation to proprietary claims but also to personal claims where it is just and convenient in all other circumstances of the case to do so.

3. Anton Piller Orders

An Anton Piller Order again has been granted (but not frequently) by the Court to allow a party (usually under appropriate supervision) to search, inspect and seize documents or property (whether stored in files physically or electronically on computers) relating to infringement of the applicant's rights or otherwise relevant to his claim. This remedy is available in cases where:

"…Plaintiffs had a very strong prima facie case actual or potential damage to them was very serious and there was clear evidence the Defendants possessed vital material which they might destroy or dispose of so as to defeat the ends of justice before any application inter partes could be made, the Court having inherent jurisdiction to order Defendants to "permit" Plaintiffs representatives to enter Defendants premises to inspect and remove such material".

The Royal Court will normally hear such an application In Camera, ex parte and without notice.  This application has to be made with care as it is only justified to interfere with a parties' normal rights and liberties where the objectives could not be made by an order for delivery up or preservation of documents, computers, etc. The applicant will normally have to give an undertaking in damages as a condition of being granted any such order.

4. Bankers Book Orders

Further, in this particular group of remedies, The Bankers Books Evidence (Guernsey) Law, 1954 provides a discrete mechanism for the inspection and copying of entries in bankers books. Once again, it is a discretionary remedy and the Court is expected to balance the principles of confidentiality with the interests of justice.

5. Disclosure once substantive proceedings have commenced in Guernsey

Standard Disclosure:

Once proceedings have been commenced, then the normal and standard duties of preserving and disclosing information and documents will apply. Disclosure forms a key part of civil proceedings in Guernsey and is largely modelled on the regime established by the Civil Procedure Rules in England and Wales – except that the Guernsey Rules are much less voluminous and prescriptive than their counterpart in England and Wales, which can often be to a litigator's advantage.

Each party must provide a list to the other disclosing the existence of all documents which are now (or ever have been) in their "possession, custody or power" and are relevant to the issues in dispute.

The obligation to give disclosure must be made thoroughly and conscientiously as there are severe sanctions if a party to legal proceedings fails to comply fully with this obligation. Documents that are "privileged" are exempt from this obligation. Certain documents that have been or will be created will be privileged or withheld from inspection, the most important categories being:

1. Legal advice privilege; documents or correspondence between the client and members of the legal profession for the purpose of giving instruction or obtaining legal advice.  This covers almost all communications between the client and its lawyers;
2. Litigation privilege; documents where the dominant purpose for which the document was created was to obtain legal advice or to collect evidence in respect of contemplated or ongoing litigation.

The disclosure process is a continuing one and applies to documents which may be created in the future. Generally disclosure under this process means that such documents may only be used for the purpose of the proceedings within which it has been disclosed.

In the complex commercial cases often now appearing before the Royal Court, it has been used to applications being made by a party to whom the document belongs to nevertheless restrict or even prohibit any further use of the document and/or, in the opposite, faces an application to the Court for permission to use such documents in other proceedings where they are clearly relevant. Like many other important legal principles, this exception was grappled with by the Court recently in the re Tchenguiz Discretionary Trust (2017) unreported judgment 3/2018.

6. Specific Disclosure

Any party to proceedings may apply to the Court for Orders requiring an opposing party to make "specific disclosure" of a document if there is a real probability that the document sought will, on inspection, yield information of a substantial evidential materiality to the case as pleaded at the time of the application. Blanket orders will not be granted on the mere possibility of a fruitful train of enquiry being revealed – see James L Smith v. Islands Insurance Company Limited (Royal Court Judgment 2001/28) and Norman Piette Limited v Hochtief Constructions (UK) Limited 2005 GLR 50.

7. Disclosure of a Document referred to in Pleadings

An often overlooked weapon is Rule 73 of the RCCR, which sets out the potentially extremely useful resource available to demand sight of documents referred to in any formal Court documents including pleadings, witness statements, affidavits or expert reports. This power will extend not merely to documents which have been specifically and expressly identified in the Court documents but also where they are alluded to and can be identified from that reference. This always has to be subject to the principles of proportionality and in the past the Court has refused such requests where the pleading referred to merely identified "a room full of documents" at a specific address.

8. Arret Conservatoire

This power is available to conserve assets pending the outcome of a hearing. It provides the customary power to freeze assets where a creditor wishes to arrest a specific identifiable tangible asset of personal property located in Guernsey – the fruits of which may ultimately be used to satisfy a prospective judgment. It is distinguishable from the injunctive relief/freezing orders which require a respondent not to deal with assets generally. The Arret Conservatoire is designed to preserve assets where otherwise a claim will be worthless where:

1. The plaintiff has a cause of action in Guernsey against a defendant (this can be via reciprocal enforcement of a foreign judgment);
2. The defendant has property in Guernsey which is capable of arrest. This applies only to personalty e.g. money, boat, planes, etc., and in relation to claims for liquidated sums – not realty;
3. There are good grounds for believing that without this arrest it is likely the goods will be removed from Guernsey and the plaintiff will suffer prejudice in attempting to recover the debt.

This procedure can be used against third parties who hold property for the debtor.

9. Freezing Orders

The Court in Guernsey has all the usual powers available to the Courts of England and Wales to grant orders of injunctive relief to a claimant pre-action whether limited to assets in Guernsey or worldwide freezing orders.  

The usual requirements for such orders have been set out by the Court, namely: 

1. The claimant has a good arguable case against the respondent;
2. There is a real risk that any judgment the claimant may obtain will go unsatisfied by reason of the disposal of assets unless the respondent was restrained; and
3. It is just and convenient in all the circumstances for the freezing injunction (and the ancillary orders) to be made including an order to prevent abuse.

Such an order may well be ancillary to substantive proceedings in Guernsey or elsewhere. If the order is sought ancillary to proceedings elsewhere then:

1. The Court may well expect that the primary court will have already granted such relief; and
2. The applicant must identify both:-
   1. the actual or prospective proceedings in aid of which the application is made;
   2. the prospective judgment whose enforcement the defendant is not to be permitted, by dissipating its assets, to frustrate.

The Court has stated that once the prerequisites are fulfilled then the Court should not be timid in granting freezing orders that are needed to protect plaintiffs whether at home or abroad from having future judgments rendered valueless by the dissipation of the defendant's assets. See Garnet Investments Limited v. BNP Paribas (Suisse) SA, Guernsey judgment 2/2009, paragraph 89.

10. Assisting other jurisdictions

The Commission Rogataire:

By the Evidence (Proceedings in other Jurisdictions) (Guernsey) Order 1980, the provisions of the Evidence (Proceedings in other Jurisdictions) Act 1975 are extended to the Bailiwick of Guernsey. The Court has authority pursuant to that Act to assist the High Court of England and Wales to obtain evidence from residents or institutions in Guernsey.

The Hague Convention on the taking of evidence abroad in civil or commercial matters 1970 was extended to Guernsey in 1981. The Court may also assist High Courts in other Hague Convention states (which includes most of the EU, USA, Australia, China, UK, etc) to obtain evidence within Guernsey for the purposes of civil proceedings which have been instituted before that other Court or are contemplated before that Court. However, the procedure cannot be used for a pre-trial disclosure of documents, per Article 23 of the Convention.

In relation to any application received, Guernsey Courts must use the same procedural laws with regard to the collection of evidence – it will be for the foreign Court to ultimately rule on its admissibility. In Guernsey, an application for assistance by a foreign Court is known as a Commission Rogataire – by which evidence can be taken in Guernsey for use in foreign proceedings and visa versa in foreign jurisdictions for use in Guernsey.

The first step is to obtain a "letter of request" (letter rogatory) from the relevant foreign court. Usually this will be sent directly to an Advocate who prepares an application to the Court. The following details must be included in the letter rogatory:

1. Details of the action which has been commenced or is contemplated;
2. Questions to be asked of the witness or subject matter of the questioning;
3. List of documents the witness is required to produce or property to be inspected.

The Court must be satisfied that the application is made in pursuance of a request issued by a foreign Court. It can order the provision of documentary evidence, but will not grant an order requiring a witness to state what evidence he has had in his possession, custody or control – as this would amount to a fishing expedition which would not be permissible – see Rea Brothers (Guernsey) Limited v. SEC (1986) 3 GLJ 22. If the application is granted, a commissioner, usually an officer of the Royal Court in Guernsey (called a ‘jurat’) is appointed to preside over the proceedings. A date is fixed for the Commission Rogatoire and the witnesses are formally summonsed to appear.

11. General Assistance to other proceedings

Disclosure will be ordered by the Court in appropriate cases to assist foreign proceedings providing the Court considers it "just and convenient". This jurisdiction extends to making disclosure orders ancillary to freezing orders – even where no proprietary claim is an issue.  

12. Foreign Insolvency Provisions

As the fallout from the restrictions imposed by governments around the world to protect against the spread of COVID-19 begins to manifest, many believe that a wave of insolvencies is coming. In some cases those insolvencies will expose financial wrongdoing leading to insolvency practitioners riding the crests of complex fraud investigations.

The suite of information gathering powers afforded to insolvency practitioners should always be kept in mind when seeking information. In many jurisdictions, the insolvency office holder's powers will go some way beyond those available to members or creditors of an insolvent entity. Naturally, those insolvency practitioners with a background in asset tracing will also have available to them, often in-house, expertise in forensic accounting, e-disclosure and data analytics that can be brought to bear in investigations. Consequently, there can be value in exploring the possibility of considering making formal insolvency appointments to an entity involved in an investigation to help crack open the door.

Whilst the mechanisms by which appointments could be secured in Guernsey are outside of the scope of this article, our article for last year's publication, entitled ‘Creditor’s Rights and Remedies in Guernsey’, explored that detail and may be worth revisiting.

However, it is not just domestic Guernsey appointments that are worthy of consideration when looking for information held here. Guernsey's Royal Court has an established record of assisting foreign office holders in the performance of their duties, including information gathering and we now look briefly at the routes to recognition in the coming paragraphs.

Recognition can essentially be divided into two types. First, section 426 of the UK Insolvency Act 1986 has been extended to Guernsey by the Insolvency Act 1986 (Guernsey) Order 1989. The effect of this is that the Royal Court can provide judicial assistance to the courts of England and Wales, Scotland, Northern Ireland, the Isle of Man or Jersey in insolvency matters. Equally, Guernsey officeholders are entitled to seek assistance in those jurisdictions that have chosen to elect Guernsey as the specified country for incoming requests.

A letter of request issued under these provisions is authority for the receiving court to apply either its own insolvency law (or the insolvency law of Guernsey) and, in the event, its own jurisdiction and powers. Section 426(5) states that the receiving court "shall assist" the requesting court and the UK courts have granted assistance in a wide variety of circumstances. This is a powerful tool and would allow an insolvency practitioner to utilise his full suite of domestic information gathering powers in the reciprocating jurisdiction including, for example, section 236 powers granted under the Insolvency Act 1986.

The second type of recognition is under the common law. This is an area that has been subject to substantial development in other jurisdictions in recent decisions, particularly that of the Privy Council in Singularis. The key to common law relief is often the information gathering powers an office holder in the receiving jurisdiction would be afforded under its own laws. Guernsey continues to develop its domestic laws and, in particular, expects to introduce revisions to its law this year that will increase the investigative powers of office holders.

In any event, the broad position is that Guernsey will cooperate in foreign insolvency proceedings, particularly where there is a sufficient connection between an officeholder appointed in the jurisdiction where the company is incorporated or individual domiciled and the company or individual has submitted to the jurisdiction of the court where the appointment was made. Although the Royal Court still retains discretion under the common law, where there is a sufficient connection the Court will typically grant the relief sought. 

Conclusion and Outlook

As stated at the outset of this article, Guernsey is keen to ensure it is not perceived as some form of ‘tax haven’ where the proceeds of a fraud can disappear. In the case of Seed International Limited v Tracey, it was stated that when exercising the Court's discretion in this type of application the Court had to bear in mind the special circumstances of a small island community and the need to maintain the highest standards of probity for its financial services industry. The speed at which assets can be transferred out of Guernsey worldwide made it appropriate in the circumstances to maintain an order for the disclosure of information. The Island is determined that victims of fraud should not be left powerless if the perpetrators sought to use any of the services available in Guernsey’s finance industry to avoid detection or justice. 

This article was originally published in the ICC FraudNet Commercial Crime Services Global Report 2022.