Global Enforcement And Asset Recovery Series: Asset Disclosure

Introduction

In the context of asset recovery, a successful outcome largely depends on the ability of a claimant to garner sufficient disclosure of assets that are amenable to enforcement. This, in turn, explains why the powerful injunctive relief available in common law jurisdictions, and particularly in England & Wales, is often the focal point of successful recovery strategies. In these jurisdictions, freezing injunctions are typically accompanied by ancillary disclosure orders that seek to provide applicants with sufficient asset information to "hold the ring" pending determination of a dispute, and the information gleaned through these disclosure orders will often be the key ingredient to successful enforcement. It also explains why disclosure applications—either against defendants or third parties that may hold valuable information as to defendants' assets—are a key focus at the outset of disputes, and why they can be so hard-fought. These types of orders can also be used to flush out all prospective defendants to a claim, which can be invaluable to claimants in cases where it is not entirely clear who the ultimate wrongdoers are.

Fraud or enforcement matters on a global scale can present particular problems for lawyers, particularly in circumstances where assets are held in, or have been transferred through, common law and civil law jurisdictions, which can have considerably different rules relating to disclosure. These issues are further complicated by the divergences between common law and civil law jurisdictions on various legal principles, including collateral use of information, privilege, and comity. In such cases, practitioners must be able to navigate the procedural idiosyncrasies of relevant jurisdictions and their disclosure regimes.

This paper aims to clarify these issues and provide an overview of the main asset disclosure strategies available in several major jurisdictions and the key considerations for applicants in the context of global asset recovery exercises.

England & Wales

Overview

The English courts are willing to grant wide-ranging disclosure of assets in a variety of circumstances. Most frequently in the context of fraud claims, the courts will do so ancillary to a freezing injunction or proprietary injunction. The courts also have jurisdiction to grant disclosure orders: (i) in advance of a freezing order to determine whether such an order should be made; and (ii) against judgment/award debtors. The court is often more willing to grant expansive disclosure at the enforcement stage as final relief than as interim relief.

The English courts also have well-established powers to seek disclosure from third parties (of particular use in cases in which a respondent holds assets through nominees and opaque corporate structures). Norwich Pharmacal orders are frequently granted against banks, corporate service providers, and other third parties to support and make effective freezing orders by compelling disclosure of information about a respondents' assets and the manner in which they are held. Bankers Trust orders are based on a similar jurisdiction, which allows claimants to seek disclosure from third parties for the purposes of tracing proprietary funds.

Imaging orders—now more commonly granted by the English courts than the more draconian search orders—are a valuable method of obtaining disclosure directly from a defendant. Such orders will often oblige a respondent to deliver up electronic devices for imaging, and to hand over documents that reveal the existence of assets.

Jurisdictional Basis

The jurisdictional bases of the relief described above are as follows:

1. For search/imaging orders and disclosure orders ancillary to freezing orders: s.37 Senior Courts Act 1981.
2. For disclosure orders ancillary to proprietary injunctions, Bankers Trust orders, and disclosure in advance of an application for a freezing injunction: CPR 25.1(1)(g).
3. For Norwich Pharmacal orders: common law (albeit jurisdiction now partially overlaps with CPR 31.17).

Key Tests for Relief

A full analysis of tests for all types of disclosure set out above is outside the scope of this article, but two key tests are as follows:

For Norwich Pharmacal relief:

1. There must be a good arguable case that there has been wrongdoing by an ultimate wrongdoer.
2. There must be the need for an order to enable legal proceedings to be brought, or appropriate redress sought, against the ultimate wrongdoer.
3. The respondent must be more than a "mere witness" and must be caught up in wrongdoing, even if innocently.
4. The respondent must be able, or likely able, to provide the information or documents necessary to enable the ultimate wrongdoer to be pursued.
5. The application must be made for a proper purpose.

For Bankers Trust relief:

1. There must be good grounds to conclude that the property in respect of which disclosure is sought belongs to the applicant.
2. There must be a real prospect that disclosure will lead to the discovery of the whereabouts of the assets.
3. The order sought is no wider than necessary.
4. The interests of the applicant and the detriment of the respondent must be balanced.
5. Applicant must use only documents obtained for purpose specified.

Scope

Traditionally, the scope of disclosure orders ancillary to freezing injunctions was coterminous with the scope of the freezing injunction. However, this is no longer the case. The courts are willing to grant domestic freezing injunctions, supported by international asset disclosure. Proprietary disclosure orders and orders aga inst third parties can also be made in respect of assets internationally.

Further, the new gateway for service of non-party disclosure orders (PD 6B 3.1(25)) now means that major disclosure orders against third parties can generally be served out of the jurisdiction. It is unclear at present, however, how enforceable such orders will be against respondents located abroad.

Norwich Pharmacal orders, however, will not be granted where the sole purpose is to facilitate enforcement proceedings abroad, so there must be a sufficient connection with the jurisdiction.

Disclosure Against Third Parties

Norwich Pharmacal and Bankers Trust orders are available against third parties in fraud and enforcement contexts. Bear in mind that disclosure from third parties can also be compelled indirectly—bespoke freezing injunctions will often include obligations compelling a respondent to write to third parties such as banks, instructing and providing permission for information as to assets to be provided to an applicant's solicitors.

At What Stage Is Relief Available?

Disclosure against parties to litigation and against third parties is generally available in anticipation of proceedings (ancillary to freezing injunctions or as Norwich Pharmacal relief) and during proceedings. At the enforcement stage, the position in English law remains unclear, and it is fair to say that the tools available to judgment/award debtors may be more robust in civil law jurisdictions, in contrast to the position at other stages of proceedings.

While disclosure relief against judgment/award debtors is well established (by way or cross-examination as to assets or otherwise), the availability of equivalent relief against third parties to identify assets amenable to execution has not been definitely established. Norwich Pharmacal relief is conceptually available at this stage but will likely require a third party to be involved in a judgment/award debtor's illicit efforts to evade execution.

In Support of Foreign Proceedings?

Under s.25 of the Civil Jurisdictions and Judgments Act 1982, the English court has jurisdiction to grant freestanding injunctive relief in support of foreign proceedings. Equivalent assistance in support of foreign arbitration exists under s.44 of the Arbitration Act 1996.

Third-party disclosure in support of foreign proceedings is much more restrictive. Norwich Pharmacal relief has been established by case law to be unavailable in support of foreign proceedings, even if those proceedings have yet to be brought. Instead, applicants are required to seek such support via the Evidence (Proceedings in Other Jurisdictions) Act 1975 (in civil cases), which can be cumbersome and time-consuming.

Limitation on Use of Information Obtained

The disclosure orders described above will most often be accompanied by restrictions on the collateral use of information or documents provided pursuant to them. For example, disclosure in support of an English injunction will normally be restricted for use in the proceedings as part of which it was obtained. Applicants can seek permission to use disclosure in other proceedings and in other jurisdictions, and frequently will need to do so in circumstances in which disclosure orders reveal the existence of assets abroad, that can only be secured through local action.

Consequence of Breach

Breach of civil orders constitutes contempt of court in England, and contemnors may be fined, imprisoned (up to two years), or have their assets seized.

Disclosure orders ancillary to freezing orders, and, occasionally, Norwich Pharmacal orders, will include penal notices— these notices make clear the consequences of breach, and serve to notify third parties on whom the order is served that their conduct may also be contempt of court even if they are not respondents to the order.

United States

Overview

In the context of domestic U.S. litigation, plaintiffs have a broad range of options with respect to obtaining disclosure from defendants and third parties alike. This can be helpful to identify stolen funds in fraud disputes and to identify assets amenable to enforcement in post-judgment contexts.

Further, Section 1782 of Title 28 of the United States Code enables a party to legal proceedings (civil or criminal) outside the United States to apply to a U.S. court to obtain discovery for use in the foreign proceedings. Section 1782 applications may be made by foreign litigants seeking documentary or witness evidence in the United States for use in foreign proceedings which are either pending or contemplated.

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